Building Wealth

For the first 30 or so years of working, saving and investing, you’ll be first in the mode of getting out of the hole (paying down debt), and then building your net worth (that’s wealth accumulation.). But don’t forget, wealth accumulation isn’t the ultimate goal. Decumulation is! (a separate category here at the Hub).

FIRE in moderation: How about the term FIE? [Financially Independent Entrepreneur]

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I write a lot about seeking financial independence rather than early retirement. That’s intentional. I don’t necessarily want to retire – not anytime soon – but what fires me up is the idea of working on my own terms.

My goal is to be financially free by age 45. That means I’d be free to ditch my day job and pursue my passion of helping people with their finances (through educational writing, financial planning, and hosting seminars or workshops). I wouldn’t be retired, since I’d still derive an income from these activities.

Many FIRE [Financial Independence/Retire Early] bloggers have the same idea: work hard, save a large percentage of their salary, and eventually ditch the cubicle life. The dream is to retire early, but more often than not their “work” turns into blogging, book writing, and speaking about early retirement.

Ironically, selling the dream of early retirement tends to be another full-time pursuit. Just look at one of the original FIRE personalities, Canada’s self-professed youngest retiree Derek Foster. He’s written six books and runs a website where he sells his “portfolio picks.” He says “retired,” I say he “quit his job to become a writer.”

To be clear, there’s nothing wrong with pursuing financial independence or wanting to retire early. Any movement that helps people spend less, save more, and strive for a happier life is to be celebrated.

[From Twitter:]

 

 

CutTheCrapInvesting
 ·

Great article. I too am a fan of saving and investing but many FIRE will get wiped out in a real correction. Worse than this article projects. FIRE is out of control, reality may hit. @myownadvisor @esb_fi @RobbEngen @JonChevreau @The_Money_Geek https://seekingalpha.com/article/4277415-f-r-e-ignited-bull-extinguished-bear …

F.I.R.E. – Ignited By The Bull, Extinguished By The Bear

Retiring early is far more expensive than most realize.Not accounting for variable rates of returns, lower forward returns due to high valuations, and not adjusting for inflation and taxes will leave

seekingalpha.com

Boomer and Echo@BoomerandEcho

The safe withdrawal math is easily ignored when the income needed to live is actually earned through blog revenue. The dirty secret of the FIRE blogger movement is they dont have to touch their investments while they’re out there selling the dream. Continue Reading…

I prefer the phrase Financial Independence Work On Own Terms (FIWOOT) over FIRE

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By Mark Seed

Special to the Financial Independence Hub

The Financial Independence Retire Early (FIRE) movement certainly has legs, and maybe rightly so.

Like any good movement, it takes courage to do what others don’t care to do.

Financial independence takes know-how, it takes discipline to hone your financial behaviours; it takes time to remain invested when others are jumping in and out of the market.  It also takes saving your brains out thanks to a good salary and let’s not forget lots of luck.  Regarding the latter, you need a strong bull market – a long one – and we’ve had it for a decade or more.

It’s not that I fully disagree with the FIRE movement and what some folks are striving for.  I think many FIRE principles have great merit and kudos to those that live by these rare principles:

  • Save early and often, in great quantities.
  • Live frugally and avoid financial waste.
  • Avoid long-term debt that is not used for wealth generation.
  • Optimize your investing (i.e., keep your costs low and diversified) to realize your financial goals sooner than later.

I’ve written about FIRE before on this site.  A few times.

I even questioned if FIRE was right for me.  I know that answer.

Why I’m tired of retire early in FIRE

In some circles (not all thankfully), the focus of FIRE is on “retire early” part.  Work hard, make good money with the intention of leaving the corporate rat-race sooner than later.  That’s fine and definitely aspirational – if that was the end of it. However I’ve become tired (and maybe a bit cynical) of some members of the retired early crowd.  Why? Continue Reading…

Eight questions to ask when evaluating a stock

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By Aman Raina, SageInvestors.ca

Special to the Financial Independence Hub

The process of trying to determine what stocks to buy and sell is a very repetitive and iterative experience. I’ve analyzed thousands upon thousands of stocks and the process I’ve used for each one has been the same. For any company being evaluated, an investor must ask the same fundamental questions over and over again in order to truly assess the investment opportunity.

The level of detail required to answer these questions are a function of time you have. If you have lots of time, you can dive more deeply into the nuances and intricacies of the company’s business model. For most investors, all that is needed is an understanding of the core elements of the business.

Make no mistake; these questions have to be answered at a basic level at a minimum in order for you to have complete understanding of the company before you commit your hard earned money to buying into it. Most people I’ve had the pleasure to work with and teach often buy stocks without even knowing what the company does or sells yet they can tell you all the specs of about their vacuum cleaner they have researched for 4 months. In my Everyday Investing course I teach, I help investors answer these questions. Below I’ve listed what I’ve determined to be the 8 questions you have to ask each time when evaluating a stock.

As we go through the questions I will put them into practice by using a stock I recently purchased as an example to illustrate. I recently made a decision to buy shares in CVS Health (Ticker: CVS).

1.) What do they sell?

Stocks are pieces of paper representing ownership of businesses. Companies are not created because nature dictated they should be. Profit-generating businesses are created to sell something, be it a product and/or service that the owners perceive society will want in large quantities. When you look at companies, it is the first fundamental question to ask. What are the core products and services that the company sells? Often in larger companies this can be answered by looking at how the company is structured with products and services often having their own separate divisions. In other cases if a company is structured by geography, the product lines will be found under each regional umbrella.

There are many sources from which you can get quick sysnopsis of a company. Here’s one I pulled from Valuentum Securities that describes CVS.

“ … The 2007 merger of CVS Corp and Caremark created the largest pharmacy health care provider in the US. The company has more than 7,800 retail locations and operates in 98 of the top 100 US drugstore markets. Its PBM business serves more than 60 million plan members. The company was founded in 1892 and is headquartered in Rhode Island.

CVS recently acquired Target’s pharmacies and clinics and it will operate the acquired pharmacies in a store-within-a-store format. The deal expands its footprint of pharmacies by ~20% (adding more than 1,660) and clinics by ~8% (adding ~80 clinics)…”

CVS also purchased Aetna Insurance, one of the largest healthcare insurance providers in the US.  With this CVS aims to become a one-stop shop for health care services in the US using their drug stores as the prime distribution point.

2.) Who do they compete with?

Chances are the company is not the only one selling the same product or service. There are likely to be other companies offering a similar or slightly similar product at higher or lower price points. Understanding or being aware of the level of competition the company faces can give us insight into how large the demand is for their product and potentially how much revenue, profit and market share they can be expected to take in the future.

In the case of CVS, the company competes with other major pharmacy chains such as Walgreens, as well as the big retailers like Walmart and Costco. The acquisition of Target’s pharmacy footprint essentially makes them de facto direct retailers. With the purchase of Aetna, their competitive universe has now expanded to include the health care insurers, like United Health.

3.) Who buys their products and services?

You know what the company sells. Now you want to know who would actually buy their goods and services. Who are the main customers for the company? What are their characteristics and background? Why do they buy the product?

For CVS, their target market is anyone that is not well or anybody that is well and wants to stay that way. I’m being very simplistic here. Again, you could do a whole market research analysis or market segmentation of their client base if you have the time.

4.) Will they buy it over and over again?

How often will a company’s client base buy their products? Can they be counted on to be repeat customers? Repeat customers mean repeat revenues and the greater the repetition, the greater for long term sustainable cash flow which will ultimately bode well for the stock price. Continue Reading…

The Back Page 2020 Energy Surprise

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By Jeff Weniger, WisdomTree Investments

Special to the Financial Independence Hub

If the term “IMO 2020” doesn’t resonate with you, pay attention: it could be front-page stuff soon.

The International Maritime Organization is putting fuel cleanliness standards in place on January 1, 2020. But the shipping companies have been caught flat-footed, despite years of forewarning. Their scramble could have a bigger effect on 2019–2020 petroleum markets than OPEC deliberations.

According to the U.S. Energy Information Administration, the shipping industry used 3.9 million barrels of crude oil per day in 2016, about equivalent to Canada’s total output. The fuel supply chain could be upended, because the “light sweet” crude oil that you find in Texas is going to be in demand, while the portion of Canada’s production that is “heavy” will want for bids.

That’s because of the pollution dynamics of the oil varieties. Think about what ships use: “bunker fuel.” Filthy, thick and viscous—one step above the tar-like stuff used to pave roads. An important component of this fuel — the enemy — is sulphur, which leads to acid rain, the destruction of ocean ecosystems and respiratory ailments. And the full-scale attack on this generation’s Big Tobacco is underway.

The regulations weren’t decided yesterday, but you wouldn’t know it from the shippers’ snail-like efforts at preparedness. Outside the “Emissions Control Area” standard for areas such as the coastal waters of North America and Europe, sulphur content must fall to 0.5% by January 1, 2020, for a ship to be allowed to set sail. In some jurisdictions, violators will even face jail time.

Figure 1:  Sulphur Content: “IMO 2020” 

Figure 1_Sulphur Content IMO 2020

Heavy Western Canada Select oil, with all that thick, sticky, high-sulphur bitumen, is exactly the variety of oil that, when refined, results in the kinds of fuels the IMO is essentially banning.

Remember when Canadian oil reached a US$50 discount to light sweet West Texas Intermediate oil last year (figure 2)? Alberta was gushing oil with no easy route to buyers. The province’s OPEC-like production cuts of 325,000 barrels per day, recently reduced to 250,000 barrels, are a temporary solution. It works, as long as nothing unexpected wallops the supply/demand dynamic. Continue Reading…

Theranos’ Elizabeth Holmes and Wolff’s new Trump book: parallel cautionary tales?

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Theranos founder Elizabeth Holmes and the book exposing the scam

Being a frugal kind of guy in Semi-Retirement, whenever possible I like to get books out from the library, whether old-fashioned physical books, e books or audio books. The main problem with this, however, is that you usually have to wait several weeks or even months to get to the head of the line for the latest bestsellers.

On a recent long weekend (the one before this one!) two bestsellers arrived the same day, which meant the pressure was on to read them in the three weeks allotted. Neither was likely to qualify for renewal, since there was a long queue of other readers waiting for their return.

The first, which arrived in e-book format, was Bad Blood, a book I had ordered several weeks earlier and has only recently slipped off the bestseller list. The other one was brand new: Michael Wolff’s followup book on Donald Trump, entitled Siege: Trump under Fire. On this one, I got really lucky, just happening to be in the library a day or two after the local branch’s local copy went on display.

Still, suddenly I had two books to read at once, which meant that anything else I either owned or was more likely to be renewable had to be put aside. No one said being frugal was easy!

I ended up reading both books over a long three-day weekend by adopting a strategy of reading a chapter in one, then switching to the next chapter in the other. Which is how I realized there were some fascinating parallels between the two books. It was something of a surreal experience, as I’m sure no one else on the planet would have read these two books simultaneously in this fashion.

Billionaires, or Thousandaires?

Both involve supposed American billionaires, although this point is debatable about both subjects. Trump’s billions are often supposed to be fanciful, which is why one New York Times columnist once earned Trump’s ire by dubbing him a “thousandaire.”

The other was a billionaire for awhile, at least on paper but these days she may not even be a thousandaire. I’m referring to Elizabeth Holmes, a young Stanford dropout who hero-worshipped Apple’s Steve Jobs and started a blood-testing company in California called Theranos.

The only problem, as Bad Blood recounts at length, is that apparently Theranos supposed ground-breaking technology didn’t work. Google Elizabeth Holmes and you can find a bunch of short videos that describe the sordid tale if you missed it the first time around and don’t wish to join the library queue for the book.

Blinded by ambition and the quest for fame and wealth, it appears Holmes and her much older partner/lover (Ramesh “Sunny” Balwani), cut numerous corners and forgot the first rule of health care is to first do no harm. They raised billions from investors, in the process fooling such retail giants as Walgreens and Safeway. Holmes had founded the firm in her early 20s and used her influential rolodex to suck in many investors who should have known better.  She also was famous for emulating Jobs and his attire of a black turtleneck sweater. And finally, as any number of Google searches will demonstrate, she pitched her voice a few octaves lower so as to impress prospects and investors with a deep baritone she must have felt would allow her to be taken more seriously.

Will Trump’s reign also end in tears?

Wolff’s Siege was released just a year after his previous Trump bestseller, Fire & Fury, and relies just as much on input from Steve Bannon. As I read and alternated chapters between the two books, it was fascinating to watch the unravelling of Holmes and to wonder whether Wolff was describing a similar unravelling of the Trump presidency. Certainly, Wolff depicts an isolated and desperate president and has predicted it will all end in tears: not necessarily ours but of Trump’s. Continue Reading…