Sitting at the Kitchen Table. It's 11:10 on Christmas morning. The packages have been opened and trash bags are full of wrapping paper. Everyone is pooped, yet there is a huge amount of activity as preparation for Christmas dinner is under way. My philosophy is that the real benefit is in getting the family together. I could get by on a hamburger and chips. Perhaps I just feel guilty because of all the work going on while I sit pounding on this laptop and looking out the window.
How is Your Resiliency Muscle? It's a muscle in your heart. It allows you to bounce back after a set back. I saw a program on television in which a four foot tall man with dwarfism was talking to a classroom of 10 year olds. He talked about the trials and tribulations of being a "little person in a big world". His own situation was complicated by the fact that his legs didn't work normally and he had to use crutches everyhere he went. Despite these many handicaps, he was a successful person by almost any measure you could use. He attributed his success to his "resiliency muscle." How many of us could use a little development of this resiliency muscle? I certainly could as I face the aches and pains of the aging process. Far too many of us sell ourselves short and accept defeat too easily because we don't exercise our "resiliency muscle."
Investors Need a Resiliency Muscle. Nowhere is the resiliency muscle more important than in investment. One of the things I work hard to do is develop a vision of the future to use in making investment decisions. As valuable as this vision can be, it is probably less important than the ability to bounce back after I make the inevitable bad decision. So many things can occur to cause an investment to perform poorly, that I know I can never predict the future well enough to do everything right. But I can't afford to stop trying. There are some very challenging economic changes ahead. No one will be immune to the consequences of these changes but those who resolve not to give up will undoubtedly do better than those who fail to persist.
A Visit From the Eagle. I have always been inspired by the pictures of eagles but, before yesterday, I had never seen this majestic bird close up enough to identify it. Yesterday, as I was sitting in my glassed in living room, looking at the lake a huge bird swooped down within 20 feet of me. There could have been no doubt that it was an eagle. Brilliant white head, with wings spread wide, and white tail feathers. Betty saw it too and we both had goosebumps at the sight. What a gift that visit was! While I won't go so far as to ascribe any particular meaning to it, I am thankful I was sitting by the window at that moment for the vision of a lifetime.
Monday, December 25, 2006
Saturday, December 23, 2006
CHRISTMAS WEEK END
Beautiful Day at the Lake. It's another beautiful day here at the lake. I got out of Denver just in time to miss the big snow storm. Lucky me. Tomorrow we're headed to town to spend Christmas with the family. Back to living out of a suitcase for a couple of days.
It's Been A Good Year In the Market. I can't complain about how the markets treated us this year. The S&P index increased almost 11% and most of our portfolios did better than that. Predictions are for another good year next year. Who knows. We will continue our philosophy of emphasizing cash flow rather than appreciation for our return on investment. This concept is well understood by my real estate investment colleagues but it sometimes called to question by financial planners. Perhaps now is a good time to discuss the whole concept of total return.
Total Return is a Simple Concept with Huge Implications. Total return is best described by the following simple equation: Total Return = Cash Flow + Appreciation. If you purchase a stock for $10 which pays an annual dividend of $.40 per year and that stock increases in value to $10.50, you have a total return of $.90 ($.40 cash flow plus $.50 appreciation) or 9% for the year. Sounds simple but there are a number of factors to consider. For one thing, you have to pay tax on the 40 cents per share but the 50 cent appreciation is not taxable unless you sell the stock If your objective is to build wealth and you have sufficient income from other sources, you can build more wealth by buying investments with less cash flow and large appreciation potential. If you need income to buy groceries, you buy investments with high current income and less appreciation potential. Can you have both high income and appreciation potential? Maybe, but it requires considerable skill or, better yet, luck to locate those investments. This still sounds relatively simple. Choose high cash flow investments for clients who need income and high appreciation potential investments for clients who want to build long-term wealth. In reality, what we do is construct a portfolio with a mix of cash flow and appreciation investments and tailor that mix to fit the needs of the client.
There are Other Factors to Consider. We can't neglect risk in our investment decisions. In the previous example, the 40 cent dividend is yours to spend or re-invest as you wish but the 50 cents appreciation can disappear. Enron is a notable example of evaporating wealth. Investors who intended to sell a bit of their stock periodically to fund their retirement found that they had no value to sell. Aside from a tax deduction, the only benefits they received from their investment were the quarterly dividends during the holding period. This leads to the conclusion that, as a rule, investments with high cash flow are lower risk than those that depend on appreciation for return on investment. Of course, there are many exceptions to this rule and high cash flow investments can carry considerable risk as well. In constructing your portfolio, you have to pay attention to all these factors. Today's good deal might be tomorrow's trash heap.
It's Been A Good Year In the Market. I can't complain about how the markets treated us this year. The S&P index increased almost 11% and most of our portfolios did better than that. Predictions are for another good year next year. Who knows. We will continue our philosophy of emphasizing cash flow rather than appreciation for our return on investment. This concept is well understood by my real estate investment colleagues but it sometimes called to question by financial planners. Perhaps now is a good time to discuss the whole concept of total return.
Total Return is a Simple Concept with Huge Implications. Total return is best described by the following simple equation: Total Return = Cash Flow + Appreciation. If you purchase a stock for $10 which pays an annual dividend of $.40 per year and that stock increases in value to $10.50, you have a total return of $.90 ($.40 cash flow plus $.50 appreciation) or 9% for the year. Sounds simple but there are a number of factors to consider. For one thing, you have to pay tax on the 40 cents per share but the 50 cent appreciation is not taxable unless you sell the stock If your objective is to build wealth and you have sufficient income from other sources, you can build more wealth by buying investments with less cash flow and large appreciation potential. If you need income to buy groceries, you buy investments with high current income and less appreciation potential. Can you have both high income and appreciation potential? Maybe, but it requires considerable skill or, better yet, luck to locate those investments. This still sounds relatively simple. Choose high cash flow investments for clients who need income and high appreciation potential investments for clients who want to build long-term wealth. In reality, what we do is construct a portfolio with a mix of cash flow and appreciation investments and tailor that mix to fit the needs of the client.
There are Other Factors to Consider. We can't neglect risk in our investment decisions. In the previous example, the 40 cent dividend is yours to spend or re-invest as you wish but the 50 cents appreciation can disappear. Enron is a notable example of evaporating wealth. Investors who intended to sell a bit of their stock periodically to fund their retirement found that they had no value to sell. Aside from a tax deduction, the only benefits they received from their investment were the quarterly dividends during the holding period. This leads to the conclusion that, as a rule, investments with high cash flow are lower risk than those that depend on appreciation for return on investment. Of course, there are many exceptions to this rule and high cash flow investments can carry considerable risk as well. In constructing your portfolio, you have to pay attention to all these factors. Today's good deal might be tomorrow's trash heap.
Monday, December 18, 2006
PLAY THE GAME HARD....BUT NOT TOO HARD.
Glad To Be Back At The Lake. Its a week from Christmas day and I am finally back at the lake. Since November 30, I have driven for 2,600 miles and flown another 1,700. I have spent a total of four days here. While that might not sound too difficult to some of you travelers, I found it somewhat draining. I am glad to finally be back at my place of refuge. The weather is warm and the water is beautiful..........Now if I could just find an efficient way to deal with all the leaves that keep falling.
I Have Had a Lot of Time to Think Lately. Sitting in a vehicle at 75 miles per hour going down Interstate 10 or waiting at an airport gives you a lot of time to think and reflect. One of the needs that seems to be prevalent among older adults is that of reflecting on the past and trying to make sense out of what it all has meant. Having spent the past 30 years in entrepreneural pursuits, I often wonder about how I could have been more successful. I know, it doesn't reallly matter at this point but maybe I could develop a bit of insight to pass on to my clients who are still in the game. One thing I feel sure about at this point is that we need to be careful who we envy and choose to emulate. One notable example is a local financal planner who had a very high profile. He lived in a high end neighborhood, had his own airplane, and once told me that his clients were all winners, and as such, wanted their advisor to be a winner also. While I found him arrogant and not very likeable, I envied his succes and assumed that he must be doing very well for his clients as well as himself to be so successful. As of this writing he is serving a 100 year sentence for bilking over 10 million dollars from those clients who placed their trust in him. His recent appeal of that severe sentence has been rejected. Lucky I didn't emulate him.
There Have Been Others. When I first started a mortgage company in 1985, I met an ex banker who had been a multimillionaire and chairman of a large bank holding company. A crisis in the banking business caused him to lose millions for himself and his banking clients and he even spent a few months in prison as a result. Still, he was one of the most driven business people I ever met. He started his own mortgage company which always seemed to do better than mine. A few years ago, he sold the company for a reported 18 million. You can imagine how much I envied him, although I will admit I found him arrogant and not very likeable. He didn't quit when he sold his business. He stayed in the game and continued to chase bigger and bigger deals. This week end when I was in Denver, I learned that he took his own life a month ago. We never know what demons chase those successful people we envy. Lucky I didn't emulate him.
We Need To Be Careful. Based on these examples, it would be a mistake to conclude that we didn't attain our success goals because we chose not to be arrogant and unlikeable. Still, it is a strange coincidence that two of the people who's business success I envied the most ultimately turned out to be failures at life. As I look out the window at the tall, glossy-green magnolia trees and the bright red holly berries, I am reminded of all the things I have to be thankful for. Perhaps I could have been more successful at business but I might not have been able to spend as much time with the grandkids or sitting outside in these beautiful woods.
I Have Had a Lot of Time to Think Lately. Sitting in a vehicle at 75 miles per hour going down Interstate 10 or waiting at an airport gives you a lot of time to think and reflect. One of the needs that seems to be prevalent among older adults is that of reflecting on the past and trying to make sense out of what it all has meant. Having spent the past 30 years in entrepreneural pursuits, I often wonder about how I could have been more successful. I know, it doesn't reallly matter at this point but maybe I could develop a bit of insight to pass on to my clients who are still in the game. One thing I feel sure about at this point is that we need to be careful who we envy and choose to emulate. One notable example is a local financal planner who had a very high profile. He lived in a high end neighborhood, had his own airplane, and once told me that his clients were all winners, and as such, wanted their advisor to be a winner also. While I found him arrogant and not very likeable, I envied his succes and assumed that he must be doing very well for his clients as well as himself to be so successful. As of this writing he is serving a 100 year sentence for bilking over 10 million dollars from those clients who placed their trust in him. His recent appeal of that severe sentence has been rejected. Lucky I didn't emulate him.
There Have Been Others. When I first started a mortgage company in 1985, I met an ex banker who had been a multimillionaire and chairman of a large bank holding company. A crisis in the banking business caused him to lose millions for himself and his banking clients and he even spent a few months in prison as a result. Still, he was one of the most driven business people I ever met. He started his own mortgage company which always seemed to do better than mine. A few years ago, he sold the company for a reported 18 million. You can imagine how much I envied him, although I will admit I found him arrogant and not very likeable. He didn't quit when he sold his business. He stayed in the game and continued to chase bigger and bigger deals. This week end when I was in Denver, I learned that he took his own life a month ago. We never know what demons chase those successful people we envy. Lucky I didn't emulate him.
We Need To Be Careful. Based on these examples, it would be a mistake to conclude that we didn't attain our success goals because we chose not to be arrogant and unlikeable. Still, it is a strange coincidence that two of the people who's business success I envied the most ultimately turned out to be failures at life. As I look out the window at the tall, glossy-green magnolia trees and the bright red holly berries, I am reminded of all the things I have to be thankful for. Perhaps I could have been more successful at business but I might not have been able to spend as much time with the grandkids or sitting outside in these beautiful woods.
Sunday, December 10, 2006
BACK AT THE COMPUTER
It's been a crazy time since my last post. I just drove a 2650 mile round trip to spend two days in Phoenix with my Dad. It was a nice visit but perhaps a bit too much driving, even for an old man who loves road trips. The worst part about this trip was the fact that I received news that my uncle fell and broke his elbow and hip. Since I am the person in charge of making virtually all the financial and personal decisions regarding his care, I sometimes felt like I should be in Colorado dealing with the situation instead of heading down the interstate at almost 80 miles per hour. Anyway, I am flying to Colorado this coming Tuesday to check on him.
Caring for an aging relative can be very stressful in the best of situations, but it is seriously compounded when there is no money. I feel really fortunate that there are funds available for my uncle's care and I can make decisions based on his best interests without worrying about money. While I helped my aunt and uncle with investment and other financial decisions for 20 years prior to my aunt's death and my uncle's alzheimers, they deserve a lot of credit for setting up the proper vehicles to allow me to continue to do so when they were no longer competent. Many of us think that old age and incompetence is something that happens to others but it can happen to anyone. My uncle was a highly decorated WWII veteran and a very competent individual. He was the last person you would expect to become totally incapable of managing his life. Now he can't even remember his last name. As painful as it is to think that we may be like him someday, we have to consider that possibility in our planning. Hardly anyone does. One of my own personal goals for January of next year is to take a hard look at my own situation and make sure that plans for the future are based totally on reality and not wishful thinking. Thinking about the fun things we want to do after we no longer have to spend 40+ hours a week earning a living is the enjoyable part of late life planning but we have to devote at least some energy to thinking about what can go wrong and developing some contingency plans for dealing with those possibilities. The same thing holds true for me in writing about these issues. I would attract more readers by writing about the "fun stuff" but life isn't always about the "fun stuff." Hopefully, I can encourage you to protect your family members by considering these other issues as well.
Dealing with adversity is part of life and we always have to remain as positive as we can in these situations. Remember. When life hands you lemons, buy a bottle of tequila and some salt and give me a call.
Caring for an aging relative can be very stressful in the best of situations, but it is seriously compounded when there is no money. I feel really fortunate that there are funds available for my uncle's care and I can make decisions based on his best interests without worrying about money. While I helped my aunt and uncle with investment and other financial decisions for 20 years prior to my aunt's death and my uncle's alzheimers, they deserve a lot of credit for setting up the proper vehicles to allow me to continue to do so when they were no longer competent. Many of us think that old age and incompetence is something that happens to others but it can happen to anyone. My uncle was a highly decorated WWII veteran and a very competent individual. He was the last person you would expect to become totally incapable of managing his life. Now he can't even remember his last name. As painful as it is to think that we may be like him someday, we have to consider that possibility in our planning. Hardly anyone does. One of my own personal goals for January of next year is to take a hard look at my own situation and make sure that plans for the future are based totally on reality and not wishful thinking. Thinking about the fun things we want to do after we no longer have to spend 40+ hours a week earning a living is the enjoyable part of late life planning but we have to devote at least some energy to thinking about what can go wrong and developing some contingency plans for dealing with those possibilities. The same thing holds true for me in writing about these issues. I would attract more readers by writing about the "fun stuff" but life isn't always about the "fun stuff." Hopefully, I can encourage you to protect your family members by considering these other issues as well.
Dealing with adversity is part of life and we always have to remain as positive as we can in these situations. Remember. When life hands you lemons, buy a bottle of tequila and some salt and give me a call.
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