Hey Kid, Wanna Buy A Stock?

Friends of mine recently welcomed their first baby into this world. To lend a hand, family members and friends showered the beaming mama and papa with practical items such as blankets, clothes, diapers, bibs, bedtime story books, and toys. All fine and good and generous, right? I mean, babies cost money so why not lighten the load somewhat for loved ones by covering some up front costs.

Of course, while appreciated, this sort of welcome to our world financial contribution is measly compared to future costs. Because, as far as I know, babies morph into kids who develop into teenagers that mature into adults. And along the way, during this growth extravaganza, expenses keep coming at you. We’re talking about $230,000 for your average kid (of the no-frills, minimalist variety who attends public school, keeps extra-curricular activities to a minimum, and doesn’t have any special needs) from date of entry to age 18. Yikes!

Being a finance geek (i.e., like geeks of all manner of persuasion, somewhat out of sorts in a harmless, eccentric way), I saw no reason to give a traditional gift. One that would be short-lived, that the kid would outgrow within two, three or six months. Nah. I wanted to give something with staying power. Something with maximum long term benefit to both parent and child. So what did I give? Five shares of Bank of Montreal (TSE:BMO) (NYSE:BMO) stock.


The Gift That Keeps On Giving

Laughing Friend. “You gave the kid bank shares?!”

BuddhaMoney. “That’s right.”

“How about a briefcase? You get the kid a snazzy leather briefcase to carry the share certificate?”

“Funny. You’re missing the point.”

“Okay, I’ll bite. Why are you the only person on this planet who gives stock as a baby gift?”

Here’s the thing: in the long run, those five shares are likely to pay for a whole lot more than blankets and toys. How so? Because share value will grow over time. Am I certain about this? Nope. Nothing is certain but the usual mainstays, death and taxes.

But here’s what I do know: (1) Canadian banks have been a stellar investment for decades; (2) I bought shares after BMO (Canada’s fourth largest bank) released negative news which caused its share price to drop (I only buy ‘on sale’!); and (3) at the purchase price, BMO pays a 4% dividend.

So at an initial cost of $450, The Mom and Dad will receive an $18 dividend check by the time the kid’s first birthday rolls around. At age 18, assuming share value and dividend payments haven’t changed, The Mom and Dad will have received about $461 in dividend payments alone.

But that’s not all. BMO typically increases its dividend payment once or twice per year. This means the dividend paid goes up and more money is distributed to each shareholder. And I’m confident that share price will increase in value too given the stock’s past performance (from 1992 -2012, BMO’s share price increased an average of 8.14%. If you include dividends, the average annual return was 12.58%. In raw dollars, $10,000 invested in 1992 would have been worth more than $107,000 in 2012).

Of course, in the stock market, historical performance does not necessarily predict the future. But given the outsized role that Canadian banks play in the domestic economy, as well as their business activity outside of Canada (i.e., BMO Harris Bank in USA), I’m confident that BMO will be profitable for some time to come (at $1.4 Billion of profit during the last quarter, BMO does bring home the bacon and then some). Related, ever wonder why your bank fees increase every year? Right, to further pad bottom lines. Another reason to become a shareholder paid BY the bank, not just a customer who pays money TO the bank.


And They Learn Too …

If The Mom and Dad know little about investing, well, receiving stock as a gift provides an excellent opportunity to learn. And when little Lily or Lenny gets older, they too may start learning the meaning of investing.

Seriously, I spent many years pursuing post-secondary education degrees so I know the importance of reading and writing and math, etc. But what too few schools teach, to society’s detriment, is basic money management.

So when Lily or Lenny becomes a software engineer earning six figures or more, they’re clueless as to what to do with their money. And they’re ripe pickings for becoming indebted, stressed, consumers. Because if they don’t learn something about saving, spending and investing from school or from Mom and Dad, it’s unlikely they’ll make the effort to learn on their own.

I’m not saying that the dream of any kid to become an astronaut, singer or firefighter will be replaced by the appeal of FINANCIAL ADVISOR. And really, nobody wants that as a dream. What I am saying is that learning about investing should be part of every kid’s education. Because they will deal with money in one fashion or another throughout their adult life. And this isn’t a case of a little bit of knowledge being dangerous. Rather, when it comes to finances, a little bit of knowledge leads to questions, leads to more knowledge, and so on, and this goes a long way toward constructing the tools to make sound financial decisions.

Just ask your self this: do you consider your self financially literate? Are you confident making investments? How often are you stressed by money issues? Wouldn’t it be amazing if kids graduated high school and could answer: totally literate, totally confident, and not stressed because I’m fairly knowledgeable and know where to search for answers if I’m stuck.


Starting Young

There’s a company called Stockpile. They facilitate stock investing by allowing you to buy as little as $5 worth of stock (i.e., often buying fractions of shares) either for your self or as a gift in the form of an e-gift or gift card.

To increase appeal to skeptical kids, tell them they can own a piece of Hershey or Google or Nintendo, can track share price on Stockpile’s site, make trades with your approval, and learn why share price is moving up or down. Will that be enough to get kids interested in investing? Probably not. Kids (and some adults) have a hard time planning for the future and delaying gratification (why save for later when you can spend now?).

It all seems boring to most kids, and many adults. But that’s where you come in, either investing for your own kids knowing they (and you, if investing is not within your comfort zone) will benefit from gaining more knowledge about investing, and from successful investments.

As for me, I’ve been investing money for my kids since they were yay big. And from time to time I slyly bring up the topic, trying to peak their interest. Other times, I blab on about money matters, ignoring their stretching and yawning. Though my attempts rarely work, I figure I’m planting seeds in those mushy brains. And when the time is right, and the brains firm up, those seeds will sprout.

That said, my efforts are starting to bear visible fruit. Both my teenage son and daughter, who work part time jobs and pay for some of their own clothes, like to tell me when they buy a pair of shoes or jeans on sale. ‘The less I pay to someone else, the more money in my pocket, right’, they like to say. Hmmm. Wonder where they got that from? Eventually, I’m hoping to hear something like, ‘the more I save and invest now, the more I’ll have later and the less I’ll stress about money.’ In time. All in good time.



Don’t Fall For The UpSell!

Released in 2004, Supersize Me is a documentary that follows director, Morgan Spurlock, on his quest to discover what will happen to his body and mind when scarfing down nothing but McDonalds food for 30 consecutive days. For those of you who haven’t watched the film (spoiler alert!) let’s just say that Spurlock gained close to one pound/day, increased his body fat by almost 15%, nearly destroyed his previously healthy liver, saw a 65 point cholesterol spike, became depressed, exhausted, impotent … need I say more?

But I’m not here to review the film or comment on the garbage food (uh, oh, I suppose my reference to fast food as ‘garbage’ counts as a comment) dished out by the conventional fast food industry. Nah. Instead, I’m using Supersize Me as an excellent example of what’s known as ‘UpSelling’.


What Is Upselling?

Upsell. verbDefinition. A sales technique where seller induces the customer to purchase more expensive items, upgrades or other add-ons in an attempt to make a more profitable sale.

Part of the rules Spurlock set for himself included accepting the offer to ‘Supersize’ his order whenever offered by a McDonalds employee (thereby speeding up his march toward organ failure and mental breakdown … uh oh, I did it again! Revealed my bias by commenting).

The marketing geniuses struck gold with this catchy phrase. People loved saying it. And the more they said it when ordering fries or pop, the bigger their bill, and the more money McDonalds made.

See, that’s where the genius comes to play. To upsell customers, to get them to buy more than they want without knowing it, a cute, fun phrase is invented and actively sold to consumers.

Unfortunately, too many consumers saw only the fun of it all, failing to realize not only that the food (if you can call it that) is making them sick but, like the McDonalds Burglar (one of their cartoon characters intended to suck kids into the nefarious arched orbit), the company slyly dipped into consumers pocket for a few more bucks, lightening their wallet.


That said, no one forced consumers to buy enough pop to quench a small village’s thirst, or so many fries that Idaho potato farmers were working overtime to satisfy ever growing demand. Ultimately, each consumer made that choice.

Unlike Spurlock, consumers are not bound by any rules saying that YOU MUST CONSUME MORE if someone offers you more food or drink. Regardless, this is exactly what fast food consumers did. (However, to be fair, Spurlock claims that, eaten often enough, people develop a physical addiction to fast food not unlike a drug addiction that is terribly difficult to break).

And it took Spurlock’s film, and the ensuing outrage it sparked, for McDonalds to shelve the Supersize Me schtick. I mean, hey, when publicity negatively affects sales, you return to the drawing board to scheme other, less slippery, ways to fleece the public.

Here’s what McDonald’s Canada spokesman Ron Christianson said way back in 2004:

“We’ve not eliminated any portion sizes that used to be there. We’ve simply done an adjustment of the terminology Super Size to a large and ceased promoting it in our restaurants.”

Hah! So nothing has changed but terminology? The menu still offers fish tank sized cups of pop and flat boards full of fries … but it goes by a different name. And they don’t actively promote buying more food? Right. When was the last time you ordered a burger and weren’t asked, ‘would you like fries or salad or a drink with that?’ (Technically, this is known as ‘cross-selling’ since the customer is being induced to buy a separate item, not increase the size of the item already ordered. For this post, I’m lumping together upselling and cross selling).


Who Doesn’t Upsell?

So while McDonald’s no longer has the benefit of upselling with a clever phrase, they still upsell. And just so you won’t think that I’ve got a bee in my bonnet (um, that’s a metaphor because, um, I don’t actually have a bonnet, haven’t ever worn a bonnet and, really, wouldn’t even know where to get one), there aren’t too many for-profit organizations that don’t upsell, given the opportunity.

Cases in point:

Airlines. They’ve unbundled prices. Meaning, first you pay for airfare. Then you pay for a seat. And the closer you want to sit to the front of the plane, the more you pay. And unless you have an airline affiliated credit card or other related membership, you’re paying for baggage. Why, because major airlines are public companies. And public companies care more about shareholders than customers.

Rental Car. You’ve rented an economy car, arrive at the rental counter, and you hear, “… for $10 more, we could put you in a full size sedan; for $25, a convertible!” Then the agent tries to convince you that you need to buy their insurance; and it’s better to let the rental agency fill the tank. Just say NO, to all of that. Do your research, find the car you need, know that the rental agency rep will run a full court pressure on you, trying to sell you everything you don’t need, and say no.

Restaurants. It comes down to knowing what you want. To not being “sold” on extras. So if you just want a burger, don’t say yes to the fries simply because someone asked. The employee is responsible for asking, for trying to sell you. You are responsible for knowing what’s best for you. And this means health wise and pocketbook wise.

Clothing. Don’t browse. Know what articles of clothing you want before you visit a store, whether online or bricks and mortar. You need pants? Buy the pants but don’t let the sales clerk talk you into adding a belt when you don’t need another belt. Related, know your budget. If you’re buying shoes and your limit is $75, don’t be sweet talked into the $150 pair because they’re a ‘cool’ brand name. Say no to the more expensive pair, exercise patience, and check out other stores to find shoes you like that are within your budget.

Amazon. (yes, Amazon gets a category all its own!) Jeff Bezos and Co. are excellent at upselling. Choose an item and the site immediately recommends five other items. Drop a laptop in your checkout basket and they offer a larger, more powerful laptop. From what I’ve read, Amazon generates up to 35% of its gazillion dollars in revenue from upselling techniques. Beware! 🙂


Avoiding The Upsell

First, know what you want and stick to it. Second, don’t even consider items not o your ‘want list’. Third, know that sales drive revenue, successful companies are hugely effective at selling, and sales clerks are focused on doing their job, on making the sale.

And most importantly, be ready to say no. In fact, make ‘no’ your default position. It’s nothing to feel bad about. Really, it’s your job, your responsibility to yourself, as a consumer, to say no. Because NOT buying what you DON’T need is good for your wallet, good for building your wealth.












IPOs. Should You Bite?

After reading an article about the upcoming Initial Public Offering (‘IPO’) of Roots Ltd., a Toronto based clothing company, Mermaid, a friend of mine, called to ask for my thoughts. She was familiar with the Roots brand, had shopped there over the years, and wanted to know if this beaver sporting Canadian retailer presents a good investment opportunity? So I checked it out.

Chewy Bit

‘IPO’ refers to the first sale to the public of company issued stock. Prior to an IPO, the company is not listed on a stock exchange, and it is virtually impossible for Joe /Jane Investor to buy stock of a private company. Although private companies do have shareholders, they are few in number and there does not exist any sort of market where their shares may be bought and sold.



Be Wary The Hype

A whole mess of companies ‘go public’ every year. And for the biggest of the bunch, there’s extraordinary hype. Why the hype? To generate investor interest. The more interest, the more buyers, the higher the price climbs, the more money made by the company, insiders, and underwriters, so the thinking goes.

Who’s responsible for the hype? The company that is going public plays a role of course. But the bigger role is played by investment banks who ferociously vie for a piece of the action. And when we’re talking about a company that presents juicy profit opportunity, the big boys come to the table: JP Morgan, Goldman Sachs, RBC Capital Markets, Barclays, and the like. And they talk up the company like it’s the greatest thing since Muhammed Ali. Master salesmen, these bankers are.

Journalists also play a role, and so they should. When Roots or Snap or Blue Apron morph from private to public status, it’s a matter of public concern. And when media presents a balanced take on a company’s current business and future prospects, this helps investors weigh the pros and cons of whether or not to add shares to their portfolio. But when media cheerleads, this is where you have to be careful. This is where you have to recognize noise for what it is and not get swept up by the hype.



How Do Investment Banks Make Money On An IPO?

The company going public often uses more than one investment bank to underwrite the IPO. Here’s how it works: the banks and the company agree upon a price at which shares of the company will be purchased. This happens before shares are actually listed on a stock exchange, i.e., before shares are made available to the public.

Profit is to be made on the difference between the purchase price paid by the banks and the price they sell the shares to the public. For example, let’s say Roots Inc. goes public at $15/share. This means that the banks bought the shares at $15.

Now let’s say that investor interest has been stoked in the lead up to the IPO, bids come pouring in, and the stock ends the day at $22. So, banks made a profit here of $7/share. If they sold one million shares, that’s $7m bucks.

Still, IPOs are by no means a slam dunk for investment banks as they do take on significant risk. Facebook was enormously hyped prior to its IPO. In retrospect, for good reason. But in the beginning, it looked like a dud.

One of the largest IPOs ever, more than half a billion shares traded on the first day. The opening price was $38, rising to $45 during the day, and closing at $38.23. Shortly thereafter, share price dropped to about $18 and wouldn’t see $38 again until 15 months after the first day of trading.


What The Company Does With The Money

Plain and simple, companies go public to make money. The idea being to raise funds by selling shares to the public. Companies often use IPO proceeds for one of two reasons.

First, to raise money that is reinvested in the company’s infrastructure or expanding the business, the underlying purpose being to accelerate growth leading to higher revenues and profit.

Second, the IPO is an exit strategy, a way for founding shareholders to cash in their chips, so to speak, and sell all or part of their shares to the public.

Is one reason better then the other? Well, you can’t really make this call without knowing a companies specific situation. When management reinvests most or all IPO proceeds into the business, this tells me that they’re aligning their personal financial interest with that of new shareholders, and they’re committed to growing the business.

That said, I wouldn’t touch an IPO based exclusively on founding shareholders cashing out. As a shareholder, I want to know the company is working for the benefit of all shareholders, not merely to enrich the founders.


Roots is Flawed

Roots Inc. has been around as a private company since 1973. After decking out Canadian athletes in Roots apparel for the 2010 Olympics in Vancouver, the company’s brand recognition soared, not just in Canada but globally. And in 2015, the company sold a majority stake to Searchlight Capital LP, a private investment firm based in New York.

Here’s the thing about private investment firms: their purpose is to increase the value of companies in which they invest. A good thing? Maybe. Really depends on your perspective. Because ‘value’ is subjective. And investment firms are all about financial value, how much money is the company worth, how much profit may be generated.

In contrast, business founders are rarely so myopic in their definition of ‘value’. Not looking to turn a quick buck, founders have a long-term outlook, and take personal interest in relationships with their employees, customers and their reputation. They care.

Based on available information, Searchlight is typical, taking Roots public in order to cash out. How do I come to this opinion? Well, when companies file for an IPO with the Securities and Exchange Commission, they craft a lengthy document known as a prospectus. And in their prospectus, Roots baldly states that money raised will not be used to assist with expanding the business. Instead, and this is chutzpah for you, Searchlight will be selling its shares to the public and pocketing the proceeds.

Outraged at the nerve of Searchlight? Don’t be. This is how the game sometimes works. But the thing is, you don’t have to play. Playing is optional. And unless the line of suckers who want to buy shares at any price on the first day of trading is endless, the only people virtually guaranteed to be smiling when markets close will be those employed by Searchlight.


Moths To A Flame

Will thousands of people still buy Roots shares on their first day of  trading? You bet they will. Because the hype will only grow in the weeks and days leading up to the companies reincarnation as a public company. And some people will read about the ‘opportunity’ in newspapers or listen to talking heads on business news programs and they’ll trust what they read and hear.

As I said to my friend, Mermaid, maybe investing in Roots will turn out well for early investors. Maybe it won’t. We really don’t know. But for me, the unknowns of a relatively small clothing company don’t inspire confidence. And the known of a private investment firm selling their shares to Joe/Jane investor and pocketing their money convinces me to watch from the sidelines.

Inside The Happiest Country: Denmark

Back in July, I posted an article titled, The Danish Way of Wealth. The article was a hit, with readers sending me oodles of positive feedback. And included in the feedback were comments from a few kind souls who were born and raised in Denmark.

Not being an expert on the home of Hans Christian Andersen, I invited one such friendly, bicycle loving soul, Carl, (who maintains his own personal finance blog: www.moneymow.com) into my virtual world to provide his take on Denmark, and why its citizens are consistently rated as the happiest folks on the planet.

Oh, but before I welcome you to our discussion, you should know that no money or other compensation will change hands between Carl and myself. We’re just having fun here, hoping to provide you with an informative, enlightening and entertaining read.


Enter Thy Kingdom!

Welcome to the Kingdom of Denmark! (is that introduction okay, Carl? Too hokey? Do tour guides speak like that in Denmark? No? I should stop now, shouldn’t I? Right.)

BuddhaMoney (BM, from here on in): Hey Carl, in the spirit of talk show hosts, welcome to the BM community! No, scratch that. It sounds ridiculous. I’m trying too hard. Let’s just dive right in, okay? How about we start with you filling in some general background about Denmark?

Carl: Sure! Here’s some general tidbits:

  • We’re a small country, about 5.5 million people living on land that’s about twice the size of the State of Massachusetts (the 7th smallest State of the Union).
  • Our native tongue is Danish, a useless language that pretty much no one speaks outside of Denmark. But mostly everyone speaks English as a second language, which is taught in school from third grade onward.
  • As for placing us on a map, our neighbors are Sweden to one side and Germany to the other.
  • And yes, as you already mentioned, I do love biking! And it’s made so much easier by the fact that Denmark is as flat as North Dakota.


The (Horrors!) Welfare State

BM: Tell me about the so-called ‘welfare state’, as some North Americans pejoratively label Denmark and the other Scandinavian countries.

Carl: Denmark is definitely a welfare state! But unlike residents of countries that favour more capitalist systems, we’re good with this. I mean, close to 100% of Danish citizens approve of our political system, a system that ensures an acceptable level of welfare for all people living in Denmark.

Not to be cute here, but think about the word, ‘welfare’. Divided in two parts, you have ‘well’ and ‘fare’. We want all of our residents to live well as they travel through life. Because we see this as society’s responsibility, and we are all a part of society. Why this is seen as a negative in some parts of the world is beyond my understanding.

BM: There’s complete consensus then about government support given to people?

Carl: There’s close to 100% agreement that taking care of all members of society is everyone’s responsibility. Sure, there’s quibbling about the degree to which the welfare state should support people but not the fact that it should.

BM: Based on what you’re saying, it comes across as though your political parties are generally in agreement on most issues.

Carl: Hey, politicians are politicians, right? Meaning there will always be differences between the party holding power and minority status parties. But I will say that our political landscape is way less fragmented than that of many other democracies. For the most part, all of our political parties are social democratic. And within the social democratic framework, some parties lean left, others right.


Free Education For All and Virtually No Debt!

BM: I hear that all education is free. Is this right?

Carl: Yup. 100% free tuition from elementary school through to completion of university studies. Bernie Sanders totally envies us! Hah! Know what else? From the age of 18, as long as we are in school and not living with our family, we get paid $1,000 / month. For those who still live with their family, the monthly stipend is slightly lower.

BM: What! Why?

Carl: The thinking is that this money allows us to focus on our studies rather than working a part-time job to support ourselves, which takes away from study time. Still, we are not prevented from working and some people do choose to work part-time jobs.

Also, unlike North America where so many people live with their parents into their mid and late 20s, most Danish people live on their own by the time they’re 20. Simply because, to a large extent, most people can afford to do so with the government giving them $1,000/month.

BM: It follows then that students graduate from university without any debt?

Carl: Correct. Student loans are available from the government at low interest rates but few people see any reason to take a loan.


Know What Else is Free? Health Care

BM: Tell me about health care in Denmark.

Carl: Like education, there’s no political debate about the provision of health care. It’s free and we all agree it should be free.

BM: Well, it’s not really ‘free’. Health care is paid for through income taxes, yes?

Carl: Fair enough. That’s right. Just like in Canada. The only medical procedures you’ll pay out of pocket for are cosmetic services. And included in health care is dental treatment. Although this is free only until age 18, after which you pay out of pocket.


We’re Not Utopia

BM: Not that I want to bring down this feel good story about your homeland, but are there any negatives you see about Denmark?

Carl: No problem, BM! Sure, Denmark isn’t utopia. We have our share of problems too. And the big time problems are similar to what other countries are experiencing.

Take immigration. Owing to increased immigration to Denmark, there has been a considerable rise in support for the right wing (nut) parties, with about 25% of Danish voters backing parties with a nationalist, close the border bent. The unfortunate response from mainstream political parties has been to make it increasingly difficult to immigrate to Denmark. I see this development as shameful. Because people from all over the world make positive contributions to Danish society. We used to be a more open country. Sadly, this is changing.

Then there’s the urban/rural divide. Politically and socially, Denmark is becoming more divided between people living in large urban centres and those living in small towns. Again, sadly, this divide creates more conflict and tension within our society.

And of course, there is the issue of taxes. While we benefit greatly from free education and health care, we pay an enormous amount of taxes! Our tax system is progressive so the more you earn the more you pay in income tax. The downside here is that, as you earn more and pay more in taxes, the incentive to work harder diminishes, because so much of your earnings will have to be paid in taxes.

Like any country with excessively high rates of taxation, some really talented people opt to leave Denmark to avoid paying high taxes the rest of their life.

And the same goes for successful companies. I mean, what’s the incentive to remain in Denmark if an unfair portion of earnings goes to taxes and not to employees or shareholders? Also, high tax rates make it more difficult for companies to attract talent from outside of Denmark, which of course reduces our global competitiveness.

BM: You mentioned that few Danish residents take on student debt, which is amazing when compared to skyrocketing debt rates among North American college students. What about credit card debt? Is this an issue?

Carl: Credit cards are used somewhat but much less than cash and debit, which is much more common. So to answer your question, owing to limited use of credit cards, there’s not much credit card debt. For me, this is a result of strict financial regulation and a culture of low debt that is ingrained in us from the time we are children.

BM: That’s amazing. And smart. And with no to minimal debt, surely this contributes to Denmark consistently rating as one of the happiness countries in the world. What about bicycling? This I suppose also contributes to happiness?

Carl: When was the last time you rode a bike and did not smile? See what I mean! Yes, we love our bikes. Most everyone owns a bike here and rides it! Think of Denmark as having a bicycle culture, whereas you have a car culture in North America. The whole country is flat as a pancake, and the biking infrastructure in the bigger cities, like Copenhagen, is fantastic with whole streets having been cleared to make for larger bike lanes. Like many Danes, I bike to and from work daily wearing my work gear which, for me, is a suit.

Also, and this ties back to taxes, when you consider the amount of import taxes on cars, I totally understand why people choose to ride bikes instead! For example, a Tesla model S that costs $69,500 (USD) in the USA would cost about $118,000 (USD) in Denmark. As for a bike, there are no additional taxes and I assure you that the initial cost, and maintenance fees, are nowhere near the cost of a car.


Hygge. What’s That?

BM: As you know, one of my recent posts talked about hygge. As you also know, I’m not Danish. Being an authentic Dane, and me being the pretend King of Denmark, I anoint you an automatic expert on this subject. So, please, tell us about hygge.

Carl: Glad to! Hygge is a subject that has been discussed a lot abroad; there are plenty of books about hygge being sold everywhere at the moment. For us in Denmark, it’s part of everyone’s daily life, but we rarely discuss what the concept of hygge means. Everyone just seems to know what it means.

To me, hygge describes a special mood. The closest English word is probably “cozy”, but it is much more than that. I often associate hygge with the picture of being inside during a snowstorm in front of a fireplace with a cup of hot chocolate. It is about the feeling of happiness, trust/safety, fun and relaxation all at once.

We use it mostly as an adjective for different situations. For example, when I describe a nice dinner with some of my friends, I might say that it was ‘hyggeligt’.

BM: Well my new friend, your insights are much appreciated. May your days continue to be filled with hygge!

Carl: Thanks for listening to all my babbling about this tiny country, and may your days be filled with enormous amounts of hygge too!

$1,000 For Apple iPhone 8? Really?

About one year ago, my cell phone contract expired allowing me to upgrade my phone. At the urging of my totally plugged in teenage son, who threatened incessant ridiculing of me for using ancient technology, I upgraded from an iPhone 5c to an iPhone 6. Sure, I had the option of choosing the current model, the iPhone 7, which offered the latest and greatest tech improvements. But I couldn’t fathom one good reason to do so.

The thing is, the 5c was working just fine. It suited my needs, being fast and smart enough (I mean it’s called a ‘smart’ phone for a reason other than being an in your face, silly little marketing ploy, right?). So, just as I had no reason to exchange a 5c for a 7, nor did I have reason to upgrade to an iPhone 6.

But I did exactly that for one reason: cost (so sorry, Teenage Son, my Dad coat of armor makes me impervious to your ridicule!). Not only was there no cost for the new phone but I was able to change my phone plan resulting in reduced monthly charges.

At the end of the day, I had lowered monthly expenses, added more money to my pocket, and was the proud owner of a shiny new piece of stainless steel, glass, plastic, etc, that Teenage Son grudgingly accepted as an improvement, though certainly not worthy of any sort of excitement.

‘Excitement? You want me to get excited? You bring home the iPhone 8. Now THAT’s a PHONE to get excited about! said Teenage Son.


Bitten To The Core

From 2009 through 2016, new model iPhones rose in sticker price from an average of $629 to $645; a reasonable increase of 2.5%. Then came 2017.

While the retail price of the least expensive iPhone 7 model was $649, Apple tested the waters for big time price jumps by slapping the 7 plus with a $769 tag, an 18.5% jump from the non-plus 7.

And how did consumers respond? They loved it! Expensive or not, beyond their means or not, the 7 was gobbled up faster than a juicy stuffed turkey at Thanksgiving dinner.

And Apple execs loved it, counting profits hand over fist and watching the company’s share price (NYSE:AAPL) soar more than 60% in the past year, from about $100 to more than $160.

So the boardroom thinking went, ‘if the masses are willing to digest an 18% price increase with barely a burp, well, how about we really rock this world by moving the needle to 4 digits for the new iPhone 8, making it the first $1,000 phone?’


Justified? Reasonable? Or Not?

Oh yes. How exciting. To drop a cool grand on a phone. Who wouldn’t buy in? Who in their financially sensible mind would object to paying a whopping 50% more than the iPhone 7 for a new phone which is substantially the same save for a few new optional, admittedly cutting edge, yet entirely unnecessary features?

Because, let’s face it, this isn’t your father’s 1980s rotary phone (you mean all it did was make phone calls? How quaint. How … how did you survive?), it isn’t the laughable flip phone of the early aughts, and it isn’t even the iPhone 7 for that matter.

Dudes! Dudesses! The iPhone 8 is from the greatest of all tech companies, APPLE, and it’s their new flagship out of this universe cool product that offers infrared facial recognition and wireless charging!

Okay, look, sarcasm aside, here’s the deal: Apple’s making a bet that it can move enough consumers into the luxury phone market. (To be fair, Apple isn’t the only one looking to juice gigantic profits; Samsung, is not far behind. Later this week, Samsung will introduce its Galaxy Note 8, priced at $950). You see, companies in the know understand that if you want to plant your flag in the luxury market, no matter how well built or designed your product, involuntary salivation is triggered in a certain kind of human animal only if product price is moved beyond easy reach of the masses.

Luxury buyers WANT a higher price. I mean, how else would people be able to judge and compare themselves against others? How would they set themselves apart from the riff raff? How would they know who has more money except by what kind of phone you flash to strangers and lovingly kiss good night? (Ooops, sarcasm creeping back in).

So what’s going on? Is Apple gouging? Is this pure corporate greed at play? Is it not enough that Apple is the planet’s most valuable company? That they have more than $260 Billion sitting in the bank (you read that right)? Or … is Apple simply satisfying demand, giving a segment of consumers what they want, and in the process being a good corporate citizen?

Apple’s bet is informed by their belief that consumers will cough up a premium price for a cutting edge product. That increasing price will increase sales. And this thinking is informed by knowing that US consumers spend an average of three hours per day (three hours!!!) on a mobile device, that the Apple name commands a premium, and that consumers will pay to associate with the Apple image.

Because only at its margin is the device a phone. Moreso, it serves as a personal computer, video player, camera, gaming player, GPS system, music player, reader, wallet … and status symbol. And in the minds of tens of millions of people, its become vital to their daily existence. Not only vital, but for some “the iPhone is your dream phone,” according to Satish Meena, analyst at Forrester, a research and advisory firm to big tech corporations.


Dangerous Dreams

Okay I’m totally out of the loop. Who knew that people have dream phones?! Talk about a marketing home run. Apple, Samsung and their competitors are now burrowed in our subconscious, seemingly as essential to life as oxygen. Or so it seems for some.

And for those folks who gasp for breath when their phone isn’t within reach, the dream is often a financial burden. Because too many folks buy these devices owing to the cool factor generated by tech companies in cahoots with fawning media types.

Sure, for the true techies out there who live for the next digital advance, new model phones may be a must have. But for most of us casual device users, there is no need to buy a new model every year or two or three assuming the current model its functioning well.

But there’s want. And the want is driven by NEW and SHINY and EXCLUSIVE things that inflate our sense of status (well, really, only delusions are inflated, but too many folks derive feelings of being ‘better’ (empty as the feeling is) than others because they own a THING that’s available to relatively few.

Apple knows all about want. Same with Samsung. Any tech corporation worth its motherboard knows that phenomenal sales happen only when there exists emotional attachment. And this kind of attachment is manufactured through savvy marketing.

As corporations go deeper inside consumers heads, vulnerable consumers suffer. Because they convince themselves of the need for an expensive phone that they can’t afford. So credit cards are used for purchases. And when the full balance owing isn’t paid, the consumer incurs interest charges, adding to the total phone cost.

Or wireless carriers offer financing plans, as if this is an excellent solution. I’m here to tell you: NO, IT’S NOT! When purchases are financed, you’re charged interest and interest adds to indebtedness. And as debt grows, savings are depleted or at least not increased, and the consumer’s financial situation only worsens.

So before you chase the dream, do an inventory check of your wants and needs. Measure any desire for a ridiculously expensive electronic device against your inner values. Consider whether you enjoy being played by a giant corporation with an insatiable appetite for more. Ask your self whether you prefer to add to Apple’s monstrous cash pile or whether you prefer to build your own cash pile, through wise spending, saving and investing.






Expert, Shmexpert: What Do They Know?

Financial experts aren’t shy about telling you which way the wind will blow. Confident, at times brash, they broadcast insights into the future. Deliver crystal ball readings. And talk as if predictions and reality are one and the same. As if they KNOW what will happen tomorrow.

How kind. How thoughtful. How generous. To play nice and share such valuable information. How, um, uh … wait a second here! Unless comic book super heroes have transmogrified into living, breathing beings plying their usual trademark scaling of tall buildings, saving our planet from evil dictators and, notable for our immediate purposes, reversing the globe’s spin, peering into the future is little more than a step right up and place your betscrapshoot.

02fin3So when you read about, or listen to, a financial advisor, hedge fund manager, stock analyst, journalist, economist, media savvy CEO or any other self-appointed expert serve up their predictions hot off the press, please, for the good of your portfolio health, take it with an ever so large grain of salt.

Because predictions are just that: guesses, extrapolations, prophesies. Whether spoken by a rich guy or corporate big shot, whether published in a reputable publication such as the Wall Street Journal, Bloomberg, or Barrons, or a fly by night investor newsletter baldly touting the latest and greatest crypto-currency, understand that the only certainty about investing is that the future cannot be foretold.


Certainly, There Is No Certainty

In my humble opinion, Barrons is one of the few excellent investor friendly daily publications. And while I do glean helpful investment related tidbits from their articles, I nevertheless read them with a critical eye. Because if I didn’t, if I swallowed whole what someone else was serving up, well then, shame on me for blindly following, for responding no different than sheep (or llama!) waiting to be fleeced. Baaaa, Baaaa.

Here’s the reality: there is no certainty when it comes to predicting movements in the price of securities or growth of economies. So when someone, anyone, offers certainty in their analysis of the future, know that the offer falls under the category of HOOEY.

Now, this doesn’t necessarily mean that there is active intent to deceive on the part of the person providing information. Rather, there are a few other explanations.

First up is arrogance, an unfortunate trait too common among those in positions of power. Of course, arrogance is delusional in the sense that, however large your bank balance or expansive your influence, this doesn’t make you privy to writing history before events unfold.

Second, we the people, habitually grasping for certainty in all aspects of life, tend to respond positively to strongly worded opinions. Attracted to the ‘with us or against us, take it or leave it, black and white opinions’, we don’t care much for wafflers.

Because wafflers are colored gray, they’re messy, they confuse issues by offering more than one explanation or possible outcome, and never seem to just get to the point and tell us what we should do.

The sad thing is, this sort of thinking, this wanting to have a clear cut answer, is harmful for many reasons. Not the least of which is because, surprise, surprise, those who give off the appearance of certainty are no more likely to KNOW what tomorrow will bring than the perceived wafflers.

Personally, my bias is toward wafflers. Because they have considered more than one side of the issue (there are always at least three sides, you see) and understand that REALITY IS MESSY AND IT’S ALWAYS CHANGING.

As an investor, you don’t want to be spoon fed information, you don’t want to be told what to do. Rather, you want to (uh oh, seems I’m telling you what to do … read on, you’ll see I’m one of the good guys) think, ask questions, empower yourself by accepting the information, rolling it around, chewing on it, digesting it, spitting it up, letting it sit, looking at all angles, comparing it to contrary information sources, then using your best judgment to render a decision about its worth.


Case In Point

Back to Barrons. I recently landed on an article written by Byron Wien, vice-chairman of Blackstone Advisory Partners, a subsidiary of The Blackstone Group, an investment firm managing more than $300 Billion.

The subheading for the article is, ‘Wall Street’s Best Minds’. And the article itself is titled, ‘Smart Money Analyzes The Market.’

Hmmm, best minds you say? Okay, fine, this is marketing hype but still, given his background, I took a leap of faith here and accepted that Byron is a guy who knows a fair bit about the workings of financial markets. That said, regardless of Byron’s position or net worth, I read his words closely.

Wein. “Howard Marks of Oaktree, one of the most insightful thinkers in the money management business, has written a 22-page paper on the risks facing investors, and he concludes that this is a time for caution because of the condition of asymmetry: the potential rewards are not sufficient to justify the uncertainties and stretched valuation of equities.”

BuddhaMoney. Okay, Howard is a smart guy. Knows his stuff. But should I FOLLOW his conclusions? Does it matter that his analysis runs 2, 12 or 22 pages? Should I be cautious about investing at this time? Maybe. But even if I agree with Howard, I’m well aware that Howard’s crystal ball reading is just as accurate as any other. Translation: his ball is on the fritz.

Wein. “One investor recalled the “Rule of 20” from what now seems like ancient times: the combination of inflation and price earnings ratios should be no more than 20. On that basis, the market is a little more than fully priced but not egregiously overvalued.”

BuddhaMoney. Really? The Rule of 20? It’s ridiculous how many myths are out there trying to explain future stock market movements. And this Rule of 20, like other silly and simple ‘rules’ is meant to make clear sense of current financial conditions. And it fails. Like every other rule. Because financials conditions are too complex, there are too many moving parts that don’t allow for simplistic answers packaged in a neatly titled Rule.

Wein. “Looking at historical price earnings ratios, the market certainly appears to be fully valued, even assuming earnings continue to come in better than expected.”

BuddhaMoney. Ya well, we can and should learn from history. But history is not a dead on predictor of what will happen tomorrow. And note here that Wein himself is hedging …’the market certainly appears to be fully valued’. How is this statement helpful? Is it fully valued or not? The thing is, this phrase is purposeful since Wein knows what he doesn’t know … and he doesn’t know with any certainty whether or not the market is in fact fully valued.

Wein. “… other potential impediments to equity appreciation are not currently negative: investors are optimistic but not euphoric, inventories are not excessive, unemployment is declining rather than rising, leading indicators are making new highs and inflation is modest. Accordingly, we could be several years away from the next recession or bear market.”

BuddhaMoney. What Wein is saying is that, um, who knows! Who knows where the market is headed!


Passive Index Funds Don’t Require Tea Leaves

So what’s the take away? I’m not here to disparage Wein. The article’s title says that it’s intended as an analysis. And Wein delivers with a wealth of facts and insights, risks and other expert opinions leading to a conclusion that some of the best minds on Wall Street believe the market will go up, others believe it will go down.

And really, that’s the best that may be offered. Because no one knows with any certainty what will happen tomorrow, all we may do is inform ourselves and use our best judgment to make decisions.

That said, wise investors know enough to pay little attention to media generated noise, to not get caught up in the guessing game of when is the next market meltdown or economic recession.  Because when you have a long term game plan, short term hiccups don’t matter much.

Thus the relatively recent volcanic flow of money into passive index funds, where the only bet you’re making is that, over time, markets will go up. Is it a lock that, with an adequate investing horizon, markets rise? Nope. But a passive index fund is a safer bet than any individual security. And thats about the best we may do in the investing game.