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Archive for December, 2006

96 1/4% OFF!

December 22nd, 2006 at 06:10 pm

I got an email from wealthcreator.com.au a few days ago announcing the launch of their "investment shop". The email included a $15 evoucher as a Christmas gift. So I checked out what was on "special" and found that the "The Bullseye Investment System, - Audio Tapes & WorkBook" was on clearance sale for $24.00 (RRP $240). After applying the discount this ended up costing me just $9.00 (there's free shipping on courseware, presumably because the profit margin is usually quite large on these products) - a 96.25% "saving".

The "Bullseye Investment System" course comes on 6 audio cassettes (my car doesn't have a CD player), so it will be good to listen to on the 1-hour drive to or from work. According to the marketing guff "The Bullseye System is designed to help eliminate poor investment choices, identify superior investment opportunities, maximize profit potential, minimize risk, and simplify portfolio monitoring."

US Shares -

December 22nd, 2006 at 06:09 pm

My "Little Book that Beats the Market" Portfolio had a poor month, with several of the stocks dropping significantly. As my version of the "Little Book" strategy is to hold each stock for 18 months after purchase, then sell it and replace it with a new pick (unless its still in the short list), the monthly valuations won't really mean anything during the accumulation phase. Even once I start "rolling over" my holdings the annual returns won't show how well this strategy is performing - as it's meant to be a long term strategy. Hopefully after ten years I'll have some idea if it's achieving the target ROI of 15%. As this portfolio is being built entirely with borrowed funds, the ROI has to at least exceed the loan interest rate (around 8%) to be considered a "success" in the long run).

One reader has asked if this portfolio is hedged - the answer is "no" as I have no idea if the AUD will rise or fall vs. the USD over the long term (10+ years), and I'm not going to complicate things further by trying to guess the short term currency movements. Hedging without trying to actively "trade" currencies would just add another 1%+ pa to the costs of running this portfolio in the long term.


BOUGHT: 300 shares in OMNIVISION TECHNOLOGIES [OVTI] on 13 Nov @ $16.47 - total cost USD$5,006.00 including $65 brokerage.

BOUGHT: 320 shares in EQIP SYSTEMS [EPIQ] on 11 Dec @ $15.65 - total cost USD$5,073.00 including $65 brokerage.

SOLD: No sale this month (portfolio is in accumulation phase - US$5,000 purchase each month for 18 months)

When selecting which stocks to buy I've been keeping clear of commodity (mining & oil) stocks as I think the "e" in their p/e rations may start declining within the next 18 months if commodity prices moderate as production increases meet demand.


I'm currently ahead by 6.86% (AUD$3,109.52) after deducting an additional $65 per stock holding for selling costs, but not allowing for loan interest expenses or dividends received.

Symbol 52-wk Range P/E Trade Shrs Trade Date Price Paid Commission Holdings Value Gain
HRB 19.80 - 25.75 24.95 23.55 200 28-Jun-06 24.16 130.00 $6,029.57 -286.18Down $286.18 Down 4.53%
MOT 18.66 - 26.30 12.35 20.71 265 24-Jul-06 18.98 130.00 $7,025.73 456.89Up $456.89 Up 6.96%
MSFT 21.46 - 30.23 24.13 30.19 200 21-Aug-06 24.64 130.00 $7,729.63 1,290.98Up $1,290.98 Up 20.05%
ASEI 36.03 - 93.86 26.89 65.81 100 18-Sep-06 49.51 130.00 $8,424.76 1,956.67Up $1,956.67 Up 30.25%
PWEI 18.15 - 38.16 4.32 34.75 150 13-Oct-06 33.29 130.00 $6,672.85 150.36Up $150.36 Up 2.31%
OVTI 13.45 - 34.49 11.09 14.49 300 13-Nov-06 16.47 130.00 $5,565.03 -890.42Down $890.44 Down 13.79%
EPIQ 14.31 - 23.40 8.52 17.02 320 11-Dec-06 15.65 130.00 $6,972.29 431.22Up $431.22 Up 6.59%
Total (AUD): - - - - - - - $48,419.86 3,109.52Up $3,109.50 Up 6.86%

nb. The average gain reported above is spurious as each stock has a different holding period, and the current prices have been automatically converted into AUD, while the buy/sell commissions I entered into Yahoo! portfolio haven't been converted. I'll start tracking ROI more accurately once I'm fully invested at the end of the first 18 months.

Found money

December 22nd, 2006 at 06:08 pm

DW thinks I have a "gift" for spotting lost coins - whenever we're walking along the footpath and there's a coin lying on the ground, invariably I'm the one that spots the coin. Today I was throwing out some trash at the food court and spotted 25c change someone had left with their rubbish on the takeaway food tray. Another contribution to DS1's money box Wink It got me wondering just how much loose change is discarded by mistake and ends up in the land fill every day.

Scams, shams and shame

December 15th, 2006 at 05:15 am

I always love reading about a good scam - luckily I've never* been sucked in myself by one of these dodgy schemes, and the more of them you read about, the better you get at picking them. A good listing of some of the more common scams is here.

* Well, I did almost sent in some of my Paypal account details once in response to an phishing email - there are lots of emails purporting to be from Paypal that either request you to "confirm" your account details, "reactivate" your account, or pretend that your paypal account has paid some money to a company you've never heard of. In each case, they're just phishing for you account info. Unfortunately, these emails often look just like a real Paypal email, complete with the corrects fonts, content, layout, logos etc. and although you can often tell by the senders address, or the URL links to (such as http://paypal.dodgyco.com/paypal.htm) sometimes it's very hard to tell without some higher level internet snooping ability. These days I just ignore ALL emails that purport to be from paypal, which means I never get to read any newsletters or official notification emails. I really wish that email was NOT free - if there was a small charge (say 5c) to send an email, 99.9% of all spam and phishing emails would disappear as it wouldn't be profitable any more.

Happy Birthday to Me!

December 15th, 2006 at 05:14 am

Well, today was my birthday. Overall it was an enjoyable day and fairly economical day. I had the day off work (my company gives everyone an extra day of "birthday leave" each year, which is very nice of them), and I spent the morning driving DS1 to an appointment at the Children's hospital for a check-up with his immunologist (he has food allergies and eczema). As the specialist consult and "skin-prick" allergy testing was all covered by medicare, this didn't cost me anything (Well, technically my 1.5% medicare tax levy paid for it). There will be some out of pocket expense for his latest medications, but not today Wink

I had some bread rolls and turkey slices from the supermarket for lunch ($9.89) - but there's about half the turkey and bread rolls left over to take for lunch at work tomorrow, so it was fairly economical.

We then visited the Borders bookstore and browsed through a few books after lunch. My wife had a coffee and I ended up buying a $9.95 science book as another Christmas present for DS1, so this wasn't as cheap entertainment as it usually is. On the way home we dropped by my parents so they could say "happy birthday" and Mum gave me another birthday gift (a back-support car seat cover - at least it's useful). My parents had previously already given me a book, a 1oz silver coin (which I'd asked for) and an electronic knick-knack (a "joke master" - which I'll probably never use) for my birthday. DW gave me a wipe-off 2007 calendar as a token gift, which will also be of use.

Dinner was a pork fillet and some pumpkin, plus a couple more of the bread rolls from lunch. Next will be some free-to-air TV (Numb3rs and Survivor) before an early night (we have to leave early tomorrow for DS1's recorder concert rehearsal before school).

As my net worth has been bobbing *just* over the $1M mark this week, this is how a "millionaire" spends his birthday!

How Much Money

December 12th, 2006 at 05:22 am

NCN did an interesting post that listed how much he had earned so far, and how much he could have saved up by now (if he'd saved 10% of his income every year) compared to what he's actually accumulated (starting a couple of years ago).

I thought I'd run through the same process myself, just for interest:

"How much money have I made during my lifetime."

Here are the details. I'm almost 45, and I've worked since I was about 14 (part-time during high-school doing a paper round, market gardening, storeman & packer and music tutor, and then during uni vacations working in a pencil factory). The breakdown:

Year Salary
1974 200
1975 300
1976 400
1977 500
1978 1000
1980 2000
1981 2000
1982 2000
1983 5000
1984 14000
1985 16000
1986 18000
1987 20000
1988 22000
1989 24440
1990 27926
1991 31985
1992 34695
1993 37678
1994 38509
1995 38924
1996 38924
1997 40481
1998 41695
1999 39047
2000 40286
2001 55714
2002 58093
2003 66261
2004 68249
2005 73602
2006 75810

These are rather rough estimates (but pretty close) for the early years. I got my first "real" job in 1984 working as an "engineering trainee" while finishing off my first degree.

So, how much money have I made, in salary, over the past 32 years? $935,719. Now, for some folks, that's not much money, and for others, it's a lot of money. Whatever you think about the amount you have to admit that it is a pretty decent chunk of change. To continue with NCN's method of analysis... Where would I be if I had SAVED 10 percent of my salary, at say 8 percent interest, per year. And how does this compare to where I'm actually at. Let's run the numbers:
Ten Percent End Of Year
20 21.60
30 55.73
40 103.39
50 165.66
100 286.91
200 525.86
200 783.93
200 1,062.65
500 1,687.66
1,400 3,334.67
1,600 5,329.44
1,800 7,699.80
2,000 10,475.78
2,200 13,689.85
2,444 17,424.55
2,793 21,834.53
3,199 27,035.67
3,470 32,945.58
3,768 39,650.45
3,851 46,981.46
3,892 54,943.77
3,892 63,543.06
4,048 72,998.46
4,170 83,341.39
3,905 94,225.78
4,029 106,114.73
5,571 120,621.02
5,809 136,544.75
6,626 154,624.51
6,825 174,365.37
7,360 196,263.61
7,581 220,152.18
At the end of the 32 year period, I would have had 220,152.18 in my retirement account. Not bad. Instead, I have about 304K, as I've been putting in more than 10% and have averaged more than 8% by investing in the "high growth" funds available in my retirement account. Now, for the sobering reality. Ready? If I NEVER put another dollar into retirement, but left that 304K to grow at 8 percent, how much money would I have in, say, 20 years when I'm ready to retire?

Over $1,026,000.

Yep, that's right. I've saved around 10 per cent of my income while working, and in another 20 years I should have over $1,000,000 dollars in my retirement account, without ever saving another cent.

Wow! Now, as you can see, I have "low-balled" my estimates. I assumed a VERY modest amount of savings, and a very, very modest rate of return, which is why I actually have 38% more in my retirement account than this model predicts. If I just stick with the conservative 8% return and don't contribute any more I STILL would have over 1 MILLION dollars in my retirement account. This shows how important time is.

In reality, I'm now saving around 20% of my salary into my retirement account and will continue to do so. Assuming I earn to same amount for the next 5 years and then take a pay cut when I take up a high school science teaching job, I'll end up with $1,401,207 at 65. The recent Australian tax changes mean that my retirement account earnings are only taxed at 15% and the final benefit, taken as either a lump sum or a pension, will be tax free. So this should be enough for a comfortable retirement. In fact, based on my current spending and the fact that I won't have a mortgage when I retire, I'll probably have more income than I need and will be able to increase my savings rate when I'm "retired". I suppose at that time I'll have to consider myself a "professional" investor. After I've completed my teaching qualification and Master of IT I may enrol in the Master of Finance course my wife is currently doing so I can officially call myself a "pro" Wink

My other assets (around $700K) will continue to be invested in real estate and stocks, even after I retire, so this should provide a sizable estate for my two sons and their heirs. I've already set up retirement accounts for each of them, so they should end up with a comfortable retirement even if they never contribute anything to their retirement accounts.

It's amazing what you can achieve on a "modest" salary via a regular savings plan and sensible investments over the long haul.

Net Worth - PF Bloggers progress for NOV '06

December 11th, 2006 at 03:47 am

Here's the regular round up on how the various PF bloggers who post Net Worth each month are progressing.

Leave a comment if I've missed yours out!
Monthly Net Worth of PF Bloggers for NOV 2006:

Blogger Age Net Worth $ Change % Change
Accumulating Money 2x $43,141.79 $2,732.33 6.8%
Consumerism Commentary 30 $67,376.57 $3,536.90 5.5%
Enough Wealth 44 $991,692.00 $686.00 0.1%
Financial Freedom 30 no Nov data no Nov data N/A
Ima Saver 6x $1,376,481.00 N/A N/A
It's Just Money 32 $152,126.94 $1,611.45 1.1%
Lazy Man and Money 2x $181,501.19 N/A N/A
Make love, not debt 2x -$74,995.01 $1,816.84 2.4%
Making Our Way 37 $613,426.28 $4,961.04 0.8%
Mapgirl 32 $33,602.00 -$921.00 -2.7%
My Money Blog 28 $119,111.00 $5,127.00 4.5%
My Money Path 29 $102,480.00 $2,220.00 2.2%
My Open Wallet 37 no Nov data no Nov data N/A
New Age Personal Finance 31 $142,106.77 $8,922.50 6.7%
Savvy Saver 27 $217,449.00 $4,130.00 1.9%
nb. Some ages have been adjusted as follows:
exact age provided = listed as given
"20's" = listed as 2x
"early 20's" = listed as 22
"mid-late 20's" = listed as 27
and so on.

Rental Property Blues (cont.)

December 11th, 2006 at 03:46 am

Finally a new tenant has been found for our investment property - the rent was lowered back to the previous rate ($400 per week), so this means that we haven't raised the rent for a couple of years now. It's more important to have a tenant than hold out for an extra $10 a week. The new tenants have only signed a 6 month lease, but will stay on thereafter on an ongoing basis (4 weeks notice is required to terminate after the lease period ends). I'm hopeful that they may stay for several years as they have no kids (yet) and seem happy enough with the property and location.

My wife seems to have lost a bit of interest in being a "landlord" now that the property market has been stagnant for a couple of years, and because having no tenants for over three months was stretching our finances a bit. She was also a bit shocked by the costs of plumbing repairs and getting the place recarpeted and new kitchen lino last year (even though I meet all the "miscellaneous" costs of this investment - we just split the loan repayments 50:50).

The "experts" in the local papers are predicting rents will increase 5%-10% in Sydney over the next 12 months due to more people renting due to high property prices and a drop off in the construction of new housing due to the lack of capital gains in the past couple of years. We only just took out a 5 year fixed rate loan for the investment property last year (the variable rate is already higher than the fixed rate we got, so this will probably work out well for this 5 year term), so we won't be looking to sell the property for at least 4 years. Hopefully by then rents will have picked up and interest rates dropped a bit which should rekindle interest in property investment and trigger some price appreciation. The long term rate of price appreciation in Sydney is around 6% pa, so hopefully after two years of flat or decreasing prices, we may see a gain of 20%-30% from present levels by the time we want to sell the property in '11 or thereabouts.

If we do sell the investment property I'll be happy to invest in property via listed property trusts in future.

Free Credit Report

December 11th, 2006 at 03:45 am

The free credit report I'd requested on 31st October still hadn't arrived, so I rang up Baycorp to check. After confirming my details the CSR advised that it had been emailed on the 9th November (funny how to free report which can "take up to 10 days" to send, was emailed EXACTLY 10 days after I'd faxed in my request). As I hadn't received the report I asked the CSR to check what email address they had sent it to - sure enough, even though my email address had been printed clearly in block letters they had managed to data enter a typo and send the report to some other address (Hopefully that email address is not in use by anyone - the password security on the emailed report is simply to enter my DOB, which I'm sure is available online somewhere).

As it was their stuff up, the CSR promised to immediately despatch a new report, and it turned up in my email about 10 minutes later. The end result was that ended up getting a free copy of the "premium" report (normally $27). There's not much to the report - as I haven't made any late payments there was only my current and previous address, and a list of 12 credit enquiries made over the past 5 years or so. It all looked pretty much as expected. I certainly wouldn't bother paying for this report.

Electronic Statements

December 11th, 2006 at 03:44 am

I've been a fan of electronic bill payments (either using my CC on the phone or internet, or using bPay to direct debit my bank account) since it became available. But I must admit that electronic bills and statements have never appealed to me. Using free email accounts from netscape or yahoo means that there's always a danger that your emailed statements may disappear - especially using netscape, where your emails get deleted if you don't access your account for 30 days. Also, having to print them out to file them could cost me time and money - whereas getting the paper ones mailed to me costs them money.

So, as most electronic statements (dividends, bank statements etc) would be emailed to you I've always said "no thanks" - up to now. However, I may accept the electronic statement offer I recently got from ING. Firstly, they will store your statements on their site (permanently according to their ad), so I can access it any time via the 'net, and if my electronic statements ever went missing they should retrieve my data for me at no cost (since it's stored on their server).

The second reason is that they currently have a competition for converting to electronic statements - with three $2000 prizes up for grabs.

Net Worth Update: Dec 06

December 11th, 2006 at 03:42 am

The past month ended up flat with good gains in my stock portfolio and retirement account being offset by a drop in the valuations of my real estate assets:
* Average property prices decreased, dropping my property equity by $19,155 or 2.60%,
* My stock portfolio equity went up another $21,865 (7.25%) and my retirement account also increased slightly - by $335 to $301,981 (up 0.11%).

My Networth as at 30 Nov now totals $991,692 (AUD), an overall increase of just 0.07%.

I doubt that I will break through A$1,000,000 before the end of this year - property could go either up or down, and my US share funds are getting impacted by the decline in the USD vs. AUD.

personal finance, investment, wealth, stocks, real estate, saving

Free Online Financial Planning Program

December 8th, 2006 at 05:52 am

A group of charities has banded together to recommend people use a free online financial planning program called MoneyMinded that has helped 15,000 Australians gain control of their finances. A recent evaluation by RMIT University found that 93 per cent of those who used it had changed their spending habits, drawn up a budget or made other positive changes.The charities are urging people to complete the program's 45-minute planning and saving course that showed how to make a family money plan. Among other things the program helps people differentiate "between items they need and items they want when shopping". Such education is desperately needed by low and middle income families - a recent survey of 400 Sydney families by Wesley Mission found almost one in four had never prepared a budget.

Bad Health, Bad Wealth

December 8th, 2006 at 05:50 am

An article in the NYT discusses the costs of being overweight - not just on your health but in cold, hard cash. For example, an extra 36 grams of fat tissue is estimated to add to future medical costs in the order of $6.64 for an obese man and $3.46 for an obese woman.

Moreover, research has shown that employers discriminate against overweight people - probably because they do not want to be burdened with higher health insurance costs, or possibly just because they believe the obese are lazy, weak-willed or considered too unattractive to interact with customers. Reaerch by John H. Cawley, of Cornell University, found that a weight increase of 64 pounds above the average for white women was associated with 9 percent lower wages.

The obese accumulate only about half the assets of the normal-size American - for every one-point increase in BMI index, net worth dropped by $1,000. The typical female baby boomer earns $313.70 less annually for every one-point increase in her B.M.I., while the typical male earns $161.30 less for every point.

So, another reason for me to reach my goal of achieving an "ideal" BMI of between 21 and 24.

Frugal living: For a Fist Full of Dollars

December 8th, 2006 at 05:49 am

Yes, I'm officially a tightwad.

My eldest son (6) was excited that I've noticed and picked up a 5c coin twice this week (the money goes into his money box). I'm a bit worried though, that he wasn't impressed that it was "only" a 5c coin, and that it would take 20 of them to make $1. Stopping to pick up small change must run in our family though, because he told me that his Grandpa and done the same thing the other day.

And then, yesterday, I spent an hour in the city walking around two of the large uni campuses sticking up notices on the student notice boards - I'd printed out some info on how to open an account with EasyStreet.com.au and get a $20 "member-get-member" bonus (if they used the referral details provided). I'll get $20 each time someone opens an account this way - I'll let you all know if anything turns up in my bank account. Anyhow, I'd gotten $20 bonus when my mom opened an account, so I know it could work (in theory).

Meanwhile I rationlise it as a brisk one hour walk which was good for my health, and provided some cheap entertainment (otherwise I'd have gone to the mall, bought some junk food and browsed the bookshops).

Update: AU Stock Portfolio - 1 Dec 2006

December 8th, 2006 at 05:47 am

My stock portfolio ended up 7.25% this month. $6000 of my Telstra Installment Warrant purchase has appeared in my Leveraged Equities Margin Loan account, the other $4000 worth ended up being issuer sponsored (I had expected them to be part of my Comsec Margin Loan account) - I should have looked more closely at the "personalised" offer documentation I filled in for this allocation. It doesn't really matter - I have low gearing level on my comsec account, so the extra equity isn't required. If I transferred this allotment to my Comsec account I would lose out on the 10c discount on the second payment (due in 2008) and the 1:25 "loyalty" bonus share issue. So I'll leave this allotment as issuer sponsored until after the final payment and bonus share allotment is completed.

Current holdings:
Leveraged Equities Account (loan balance $155,585.68, value $287,540.31)
AAN Alinta Mergeco Ltd 295 $10.220 $3,014.90 70% $2,110.43 1%
AEO Austereo 1,405 $2.150 $3,020.75 65% $1,963.49 1%
AGK AGL Energy Limited 510 $15.500 $7,905.00 70% $5,533.50 3%
AMP AMP 720 $9.450 $6,804.00 75% $5,103.00 2%
ANN Ansell 480 $11.300 $5,424.00 70% $3,796.80 2%
ANZ ANZ Bank 1,107 $28.100 $31,106.70 75% $23,330.03 11%
BHP BHP Billiton 748 $25.930 $19,395.64 75% $14,546.73 7%
BSL Bluescope Steel 781 $8.130 $6,349.53 70% $4,444.67 2%
CASH Adelaide Bank CMT 14 $1.000 $14.94 100% $14.94 0%
CDF C/wealth Divers Fund 6,700 $1.750 $11,725.00 70% $8,207.50 4%
CHB Coca Cola Hellenic 118 $44.250 $5,221.50 65% $3,393.98 2%
DJS David Jones 2,000 $3.770 $7,540.00 65% $4,901.00 3%
FGL Foster's Group 3,751 $6.550 $24,569.05 75% $18,426.79 9%
LLC Lend Lease Corp 481 $17.300 $8,321.30 70% $5,824.91 3%
MYP Mayne Pharma Ltd 2,778 $4.120 $11,445.36 70% $8,011.75 4%
NAB National Aust Bank 309 $38.600 $11,927.40 75% $8,945.55 4%
QAN QANTAS Airways 2,175 $5.060 $11,005.50 70% $7,703.85 4%
QBE QBE Insurance 966 $25.250 $24,391.50 75% $18,293.63 8%
SGM Sims Gp Limited. 830 $19.600 $16,268.00 70% $11,387.60 6%
SUN Suncorp-Metway 850 $20.170 $17,144.50 75% $12,858.38 6%
SYB Symbion Health 2,848 $3.510 $9,996.48 70% $6,997.54 3%
TLS Telstra Corp 5,000 $3.730 $18,650.00 80% $14,920.00 6%
TLSCA Telstra (T3) 3,000 $2.300 $6,900.00 80% $5,520.00 2%
VRL Village Roadshow 1,500 $2.900 $4,350.00 60% $2,610.00 2%
WDC Westfield Group 783 $19.220 $15,049.26 75% $11,286.95 5%

Comsec Account (loan balance $94,108.28, value $191,706.31)
AGK AGL ENERGY LIMITED 240 15.560 $3,734.40 70.00 % $2,614.08
AAN ALINTA LIMITED 139 10.220 $1,420.58 70.00 % $994.41
APAR AUSTRALIAN PIPELINE TRUST 1,032 0.410 $423.12 0.00 % $0.00
APA AUSTRALIAN PIPELINE TRUST 3,612 4.160 $15,025.92 70.00 % $10,518.14
ASX AUSTRALIAN STOCK EXCHANGE 200 36.130 $7,226.00 70.00 % $5,058.20
CBA COMMONWEALTH BANK OF AUSTRALIA. 130 47.120 $6,125.60 75.00 % $4,594.20
CDF COMMONWEALTH DIVERSIFIED FUND 43,997 1.752 $77,082.74 70.00 % $53,957.92
IPEO ING PRIVATE EQUITY ACCESS OPT. 54,000 0.075 $4,050.00 0.00 % $0.00
IPE ING PRIVATE EQUITY ACCESS 8,000 0.970 $7,760.00 60.00 % $4,656.00
IFL IOOF HOLDINGS LIMITED 1,300 10.230 $13,299.00 50.00 % $6,649.50
NCM NEWCREST MINING LIMITED 300 25.670 $7,701.00 60.00 % $4,620.60
OST ONESTEEL LIMITED 2,000 4.500 $9,000.00 60.00 % $5,400.00
QBE QBE INSURANCE GROUP LIMITED 607 25.250 $15,326.75 75.00 % $11,495.06
RIO RIO TINTO LIMITED 60 74.520 $4,471.20 75.00 % $3,353.40
THG THAKRAL HOLDINGS GROUP 4,000 0.910 $3,640.00 50.00 % $1,820.00
WBC WESTPAC BANKING CORPORATION 300 23.900 $7,170.00 75.00 % $5,377.50
WPL WOODSIDE PETROLEUM LIMITED 220 37.500 $8,250.00 75.00 % $6,187.50


APA Renounceable Rights Issue is Bad for the Small Investor

December 8th, 2006 at 05:46 am

I received a thick wad of information in the post yesterday about a 2 for 7 renounceable rights issue from Australian Pipeline Trust. The rights are to purchase additional APA shares at $3.75 (a discount of around 15% to the current share price). Sounds OK, doesn't it? Well, yes, for most investors it's OK, even if not the windfall some may think. (As the new shares issued at this reduced price tend to make the share price drop for your current holding, so it all generally averages out - the only real benefit is that the company is getting funding at a better rate than it could get elsewhere).

However, while I'm OK with having to fork out around $3,800 to take up the rights issue (in fact I sent it on to my margin lender today, so the amount will simply be added on to my margin loan balance, so it won't affect my cashflow), some smaller shareholders may find themselves losing out. If they do not take up the offer, then the rights expire with no value, and the underwriter will, in effect, purchase the relevant number of shares that would have been issued. In this case the small shareholder will get no immediate benefit from the rights issue, and will suffer from having the share holding interest in the company diluted by the new shares issued to other shareholders and the underwriter.

Theoretically any shareholders who don't want to take up the rights issue can sell their rights on the market and get a benefit that way. But there are a couple of obstacles facing the smaller shareholders:
* the trading of the rights ends on Monday, and the offer document only arrived in the post yesterday. Any small shareholders who are unsure what to do, or don't currently have a relationship with a broker, doesn't have much time to take action.
* A small shareholder with, for example, $1000 worth of APA shares (around 235 shares) would have received rights to purchase an additional 67 shares at $3.75 - a cost of $251.25. But, if they didn't want to buy more APA shares, then they'd have rights worth AT MOST $33.50. Even at discount brokerage rates it would be hard to sell such a parcel for more than the brokerage costs!

APA has chosen to restrict the rights offer to Australian and New Zealand shareholders, as it would be too expensive to print relevant documentation for other foreign shareholders, given the different laws and regulations applicable to such an offer in other countries. For FOREIGN shareholders, APA will sell the relevant number of rights on market, and send the proceeds to such foreign shareholders.

If APA had the best interests of small shareholders in mind, they would have used the money obtained from the underwriter for all expired rights to make similar payments to any Australian or New Zealand share holders who didn't sell or accept the rights offer.

A Word a Day: "Dividend Yield"

December 8th, 2006 at 05:45 am

A numerical measure that relates dividends to the current share price and puts ordinary dividends on a relative (percentage) rather than an absolute (dollar) basis. This makes it easier to compare the yields of different stocks.

The average dividend yield of the whole market (or a particular segment) is often compared to the typical (long-run) average dividend yield in order to determine if the market (or segment) is over-priced, fair value, or under-priced.

This is only an approximation however, because the dividend yield calculation is based on historic dividends and the current share price to try to predict the future. Some analysts will modify this measure to make use of estimated or "prospective" earnings to decide if current prices are fair value. Of course this is only as accurate as your estimation of prospective earnings.

Measurement of Household Wealth

December 8th, 2006 at 05:44 am

There have been a many discussions on the pf blogs about how one calculates new worth - should we or shouldn't we include our cars, our stereo, our collection of yo-yos (not so silly: see this recent article about the value of old yo-yos) in our estimation of new worth? I came across some useful information about this which is worth sharing [ref: Annual Review of Sociology: Vol 26, p.502]
* Wealth is commonly identified with net worth and assessed as the difference between the total value of family assets and the amount of debt.
* There are various categories of household assets, with different features, so it is important to distinguish between them. Depending on which assets you include, net worth can be defined [Wolff, 1995] as:

Marketable Wealth - net worth excluding consumer durables such as automobiles, television and household appliances. The rationale being that these have less resale value than their consumption service to the family, so would usually not be sold to raise funds. This exclusion tends to impact poorer households to a greater extent, as consumer durables, especially cars, are the main "asset" of such families.

Financial Wealth - marketable Wealth minus equity in owner-occupied housing. As you need to live somewhere, it is often difficult to convert it into cash in the short term. In places such as Australia where superannuation is "preserved" (unable to be used for any purpose) until retirement age, it may be worth also excluding the value of your retirement account. I do both - my Net Worth tracked with NetWorthIQ is by "Marketable Wealth", and in my daily Net Worth spreadsheet updates I also have a column of Net Worth minus home and super.

Augmented Wealth - this includes some items not normally included in net worth estimates. Specifically, a discounted present value is calculated for any pension and social security retirement benefit.

BTW - while reading this paper I also came upon the following factoid:
"According to the Lampman-Smith_schwartz time series [Committee on Ways and Means 1992, p.1564], the richest 1% of the US population owned 36% of household net worth in 1929, but by 1982 the figure had dropped to 20%" although the data since 1982 is less clear - the decline may have continued or reversed somewhat.

ie. The Rich are getting POORER! This is probably why social commentators have recently started lamenting the income gap between CEO salaries and the average wage, rather than the traditional cry that the wealth gap between rich and poor is widening (although they still raise this topic on occasion - they simply refer the difference between rich and poor increasing in dollar terms, rather than in % terms, which wouldn't support their agenda.

Coins or Paper?

December 8th, 2006 at 05:43 am

There have been a few posts recently about the new US dollar coins that will be coming out. They probably won't replace paper for a while as the paper notes will remain in circulation. As we've had polymer notes and $1 and $2 coins for many years in Oz, I was wondering if the "paper for dollars" hang-up is specific to the US. So I had a quick search around to find out what paper/coin currency mix other developed countries are using:

Country Coins Both Notes
Australia% 5c,10c,20c,50c,$1,$2 $5^ $10,$20,$50,$100
United Kingdon 1p,2p,5p,10p,20p,50p,£1,£2 - £5,£10,£20,£50*
United States 1c,5c,10c,25c,50c $1^ $1,$2,$5,$10,$20,$50,$100
Eurozone 1c,2c,5c,10c,20c,50c,€1,€2 - €5,€10,€20,€50,€100,€200,€500
Japan ¥1,¥5,¥10,¥50,¥100,¥500 ¥1000,¥2000,¥5000,¥10000

amounts marked with an * are not in common use
amounts marked with a^ are mainly in use as notes
% - Australian also produces a range of silver and gold "legal tender" coins in deominataions such as $3, $10, $100, $200 - but these are issued in proof or uncirculated condition for coin collectors, not general circulation.

I believe that larger US notes (over $100) are similar - they exist (I think they were initially intended for bank transfers of funds) but are not in general circulation.

It certainly appears that the USA has the smallest denomination folding money still in use.

A Word a Day: "Beta"

December 8th, 2006 at 05:40 am

A measure of non-diversifiable, or market, risk that indicates how the price of a security reacts to market forces.

The Four Deadly Sins of Personal Finance

December 5th, 2006 at 04:51 am

An very interesting article in the NYT reminded me, again, of the four deadly sins of personal finance:
1. Greed - "just a little bit more" can easily become "too much", whether it be chasing higher investment returns, pinching pennies, or getting "top dollar" when selling or "a bargain" when making a purchase. Remember the old adage that if it "looks too good to be true it probably is". When looking for "overlooked" investment opportunities it's also worth bearing in mind that there are several billion other human beings out there, millions of whom are also looking for the "overlooked".
2. Sloth - most people apparently spend more time planning the annual holiday than they do on planning their finances. Aside from generally financial planning, you also have to put in sufficient effort to analyse each potential investment on its merits. Buy things purely on the say-so of a friend or relative and you will have no-one to blame but yourself if things don't work out.
3. Trust - yes, BLIND trust can be a very bad thing. As they say in auditor-land "trust but verify" - don't take anyone's word for something that you could verify. And if there is nothing to back-up someone's verbal assurance, flag this mentally as having an "unknown amount of risk"
4. Envy - just because every one else seems to be making a fortune investing by in "X" doesn't mean you should try it. It doesn't even mean that they are actually making any money from "X". Not only can appearances be deceiving, I'd say that they usually are deceiving.

personal finance, investing

All I want for Christmas

December 5th, 2006 at 04:49 am

Yet another Christmas approaches with the usual breaking of the agreement that the adults won't bother exchanging gifts. I've previously tried insisting that I really didn't want anything for Christmas from my parents (aside from watching DS1 opening his presents from his grandparents after the traditional huge family Christmas Eve dinner), but I always ended up getting "something" - usually an electronic knick-knack that I don't really want which then just clutters up the house for several years until it gets thrown out.

So, this year I decided I may as well prepare for the inevitable and ask for something that has an intrinsic value, I'll actually like, and won't take up too much space - silver coins. I already have a coin collection, so a few additions each year won't create any new storage problems. My mum had no idea how to order what I wanted, so I ordered them online and mum will pay me back (apparently adults don't need a Christmas present to be a surprise, but do need a wrapped up present to exchange). As my birthday is a couple of weeks before Christmas I ordered two items - a 2005 1oz costing $30 for my birthday present and a 1999 2 oz 99.9% Silver Kookaburra (Perth Mint Privy Mark, 1933 Shilling) coin costing $75 for Christmas.

The silver content of these coins is worth about 50% of the cost, and the same 2oz proof coin is listed elsewhere and on ebay for $120, so I think it's a good buy at $75.

investing, money, saving

A Word a Day: "Market Order"

December 5th, 2006 at 04:48 am

An order to buy or sell securities at the best price available when the order is placed.

How much can a kid earn?

December 5th, 2006 at 04:47 am

Well, aside from child actors - I mean how much can your normal, average kid earn? I've no idea really, but it's been interesting to see how much my son managed to earn doing a couple of casual jobs. DS1 earned about $80 a week doing a paper round for almost two years - he enjoyed the morning walks with his dad and stuffing the folded papers into the letter boxes. As it took 2 hours to deliver the papers, five days a week, this works out at $8 an hour for him - a pretty good hourly rate for a primary school kid. But, this isn't counting dad's time spent supervising and lifting newspaper bundles, or the cost of driving to and from the paper route.

More recently he'd started learning the recorder at school, and enjoyed performing at the school concerts, so I got him a busking licence from the city council. When he was in the city for his Saturday morning music lessons we'd take the opportunity to let him busk for a short while. At his age he gets lots of interest from the passing tourists, especially when he's wearing his medieval jester's cap. He has sometimes earned a surprising amount in a very short time - the exact amount depending mainly on the location chosen. In the main city park there was a lot of passing trade, but very few people stopped to listen. The average amount contributed was also small - around 10c-50c per person from this audience. The return was much higher outside the public art gallery - the pedestrian traffic flow was less, but the audience was more appreciative, included lots more tourists, and the amount contributed was typically higher - some contributions were $1 or more.

My son enjoyed busking for short periods - after 10 minutes he'd lose interest and need a break (a quick tour through the art gallery was always fun). Then, after a second 5-10 minute session he'd knock off for the day. One time he got carried away and kept playing for 45 minutes! He quite enjoyed earning the money, counting it afterwards, and depositing it into his savings account. Now that he's finished his music lessons in town he probably won't get a chance to do any more busking unless we're in the city anyway to visit a museum, go shopping or take in a movie.

He's been busy learning Christmas carols in his recorder class, so if we go into the city to visit the Maritime museum before Christmas he may get another chance to busk this year.

So far his earnings from busking are:
15 mins $ 2.35 (park)
15 mins $ 6.30
20 mins $ 6.80 (park)
20 mins $12.15
30 mins $10.65
30 mins $19.85
45 mins $49.65
20 mins $10.95

All up, $118.70 for 3.15 hours work = $37.68 an hour!

His annual busking licence cost me $41 and expires next May. (For Sydney City busking details see this) I don't think I'll renew the licence next year as we probably won't be in the city often enough to make it worthwhile (I pay for the licence so it doesn't cut into his earnings, but I'd like him to make more than the licence cost me, otherwise I may as well just increase his allowance and he can spend the time practicing at home). Unfortunately our local council only allows busking in very restricted areas and the licence fee is exhorbitant, so it's really the City or nowhere.

A Word a Day: "Risk-return tradeoff"

December 5th, 2006 at 04:46 am

The relationship (theoretical) between risk and return, in which investments with more risk should provide higher returns, and vice versa.

The Other Forbes Rich list

December 5th, 2006 at 04:43 am

And now for something completely different - guess who Tops Forbes Magazine's Fictional Rich List? I'll give you a hint: Lucius Malfoy comes in at number 12... check out the who's got riches beyond your wildest dreams here.

A Word a Day: "Tax Risk"

December 5th, 2006 at 04:42 am

A Word a Day: "Tax Risk"

Carni-Festivals I contributed to This Week

December 5th, 2006 at 04:41 am

What's better than pfblogs.org? Why, the Carnivals and Festivals each week - get all the best posts and none of rest! Enjoy these two already up this week:

20 NOV: Festival of Stocks #11 included my US Shares - “Little Book” Portfolio Update post

20 NOV: Carnival of Personal Finance #75 included my A Very Interesting FREE Home-Study Personal Finance Course post

Sheer Lunacy

December 4th, 2006 at 03:01 am

In yet another example of "off the wall" market timing theories, academics Ilia D. Dichev and Troy D. Janes have postulated that returns in the 15 days around new moon dates are about double the returns in the 15 days around full moon dates. A similar result was reported by Lu Zheng in the paper "Are Investors Moonstruck? Lunar Phases and Stock Returns" which showed that stock returns are lower on the days around a full moon than on the days around a new moon - the magnitude of the return difference is 3% to 5% per annum.

As is often the case in such academic studies, there is little likelihood of creating a profitable active trading strategy out of this information due to the cost of trading 13 times a year compared to the magnitude of expected outperformance (3-5% pa). However, it may be worth bearing the lunar calendar in mind when you are thinking about buying or selling shares in your portfolio, provided that there is no urgency in completing the trade. If you are routinely adding to your portfolio in the week immediately before or after the full moon, and selling within a week of the new moon adds 3-5% to your overall returns (pa?) it could be a worthwhile strategy.

The article in the NYT shows the lunar cycle effect for various markets around the world:


A Word a Day: "Pyramiding"

December 4th, 2006 at 02:59 am

The process of using unrealised gains to partly or fully finance the purchase of additioal securities using a margin loan.

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