torsdag 29 december 2016

2016 in hindsight and outlook for 2017

woman holding a sparkler in front of her

Another year passes by. What will I remember of 2016? What was good and what was bad? And what is to come?

The House

From the top of my mind, I think that the biggest personal project that we undertook this year was to renovate our kitchen. We basically ripped out the old one, opened up for a new door, re-walled another and installed the most amazing kitchen from IKEA!
2 months without a proper kitchen, doing pretty much everything ourselves (not counting water, electricity and carpet layers) with the help of our families. Hopefully we don't need to do that again for a decade or two.

before picture of kitchen renovation

work in progress picture of kitchen renoovation, black tiles on the wall and upper cabinets in place

after picture of kitchen renovation, oven, microwave, freezer and fridge in stainless steel

We finished the kitchen just in time for summer vacation and the arrival of our third cat: Prime

picture of our new kitten Prime
Now we have 3, Tiger, Pixel and Prime.

Smaller projects: 

relocation of living room. We moved our TV room to the upper floor and remodeled the living room into a dining room. Turned out great, the old yellow wallpaper was really ugly.
See before and after images:
before picture of living room renovation, yellow wallpaper
The before picture is cluttered, but so was the rest of the house as well during the kitchen project.

after picture of living room renovation, light gray wallpaper, black dinner table, white chairs and ikea lamp
New dining/living-room was completed just in time for Christmas. Much IKEA here as well, but for the fireplace area we actually ordered a 1.5 seat love-couch with really high arm rests from another store. It is to arrive in the beginning of 2017, something that I am looking forward to a lot.

Training

Was a great start this year in preparation for Billingeracet MTB, the only race I participated in this year and plan to do the same next year.
After that, our house projects took all of my time and training was a second priority.
There was also a real low-period that lasted for most part of the autumn where my resting pulse was 15-20 over normal, more on that in another post that I am planning.
From mid December, I think I am back on track again in preparation for 2017.

Brewing

First time brewing, cider. Turned out great, tastes good and hopefully next year we'll be able to make a batch of beer as well

Investing

Investing has been a good year, my favorite bank was on sale for most of the year so I was able to collect more shares than planned. And also putting away more cash into investing at the end of the year than at the start of it. A good sign that perhaps the investment plan will fulfill itself a little faster. But it is still too early to predict. :)

Outlook for 2017

Lots of plans, we would like to redo the facade on the house and add an extra layer of insulation. We fell in love with the Swedish Falu Rödfärg in the lovely color of black. But we shall see if it will happen in 2017 or 18.

For investing, I'll be keeping close track on both the UK and US, not much happened in the global economy during the vote for Brexit nor the presidential election in the US. But 2017 will be the year when both are implemented, so hopefully some stormy months in the market. For me, I don't mind. Red numbers would be good for me, meaning that I could buy up cheap shares in great businesses.


A long post, but I think I've covered it all. At least the most important parts.


Until next time: Work to Live, Don’t Live to Work

Disclaimer. I am in no way an expert on capital management or investing. On this blog I only wish to share my findings, ideas and comments on current events and fields that interest me. I hope that my thoughts can entertain you. I expect that everyone reading take their time and do their own research before acting on anything read on this blog. Investing is not for everyone. E&OE.

tisdag 27 december 2016

Reasons to avoid Debt

woman drinking coffee from a take-away mug

We live in a world where you can consume even when you can't afford the things that you crave for, especially during the month of January that generally speaking is the poorest month of the year. But you still crave for things..

So lets list all the reasons why we should avoid debt.
  • Either you can afford something or you cannot.
    Instead of taking the easy way out and buying on credit try to figure out why you can't afford it at the moment. 
  • It's cheaper to buy with your own money then with the banks.
    You do not need to pay interest rate, billing fees etc. Imagine that you buy a new TV, smart-phone, playstation, laptop, tablet etc one year. The interest that you pay over the coming years would have allowed you to upgrade the thing in a couple of years. Instead, you are probably going to continue to pay the interest when the smart-phone breaks. Not a nice feeling if you have been there.
  • Work to Live, Don’t Live to Work
    Without debt, you don't have to work. If you can get food on your table in any other way, you can do it. But with debt, you still have to earn even if you could survive in other ways. 
  • Respect your money.
    You are less likely to buy things that you do not actually need if you need to buy it with your own money that you put an effort into saving.
  • Peace of mind.You do not have to worry down the line
    You bought it, its yours. You don't need to worry each month if you can afford to pay the fees.
  • You can work on your long term plan
    Put away money into your own money machine, instead of feeding a machine that is owned by someone else. You do not get rich by giving away your money.
There are a lot more reasons but these are from the top of my head.
If you already are in debt, make sure that you have a plan on how to pay it off. We have 3 items (not counting our educations). 
  • The house we live in,
    Where we put in money each month. It seems popular to only pay interest these days but I really want to get rid of this debt. So each month, we put in a payment and I have calculated it into my retirement plan
  • Our 2 cars.
    One could argue that we do not need 2 cars, but we live on the country side.
    One could argue that we could have bought used ones, but been there done that and in the end this is cheaper for us as neither of us is a mechanic.


Disclaimer. I am in no way an expert on capital management or investing. On this blog I only wish to share my findings, ideas and comments on current events and fields that interest me. I hope that my thoughts can entertain you. I expect that everyone reading take their time and do their own research before acting on anything read on this blog. Investing is not for everyone. E&OE.

tisdag 13 december 2016

Bottling homemade apple cider


bottled cider bottles in a paper bag
So last weekend we finally bottled our cider.
During the fermentation period we've learned a lot and we had to throw out the first batch (the one that was dry-hopped.). 
Also, forgot the time on a batch of mead and it went over time with 4 weeks. so out with it as well. Better luck next time.

Cider batch #2, 20 liters, was put on fermentation on September 27, 2016. A lot of it was covered in Homemade Apple Juice/Cider.

cider siphoned to a new fermentation bucket
Picture of siphoning from one fermentation barrel to an other

The timetable that worked. Even if it can be optimized a little. I think that the key was to add the extra sugar, the apple-sort that I used was kinda sour, and not adding sugar rendered the cider undrinkable. The key is tasting, a lot.

Date Action
September 27, 2016 fermentation start 20 liters
October 8, 2016 moved to second fermentation barrel,
added 2liters of freshly pressed juice.
21 liters
October 15, 2016 tasting,
added 1 cup of sugar
October 23, 2016 tasting,
added 1 cup of sugar
November 11, 2016 tasting,
added 1 cup of sugar
moved to other barrel. 19litres
November 20, 2016 had stopped, added more yeast to start it again
December 10, 2016 stopped again,
added 6grams sugar per liter to get bubbles in the bottles.
Bottled
December 24, 2016 drinkable, hopefully :)


bottle cleaning with power screwdriver
Picture of bottle cleaning, the quick way
Just a quick tip on the bottle parts. You basically have 2 options, either to buy new or re-use. We went with the re-use option, a friend was able to get a box of used ones from a local pub. Doesn't hurt to ask, right?
Before bottling into used, a real good cleanup is needed. All the sediments need to go, otherwise your freshly brewed cider will turn bad. So a bottle cleaner is a good investment, shouldn't cost more than a few bucks. If you are like me and think that it is boring work to clean 40 bottles, why not attach the bottle cleaner to your nice electric screwdriver and get the power boost. 

cider being siphoned into bottles from a fermentation bucket
Picture of the actual bottling process

Lastly, the actual bottling. We used a pump siphon and a bottle vent. (one that you press to the bottom of the bottle to open and when you pull it up, it closes automatically). Really easy to use. Be sure to not bottle the last liter as it is mostly yeast. Keep an eye on the quality when it pours down the pipe and just stop when its not clear anymore.

Hope this was informative enough for some of you out there.

måndag 5 december 2016

My current plan, 2016 December

woman putting on her jacket hood
Time for this months update.
I am still quite optimistic regarding the future of the stock market even though there seems to be a lot of noise going on these days.
But one thing that I've noted on the past few years is that there will always be noise, and always be people who think that being committed to the stock-market is a bad deal. But then again, you have to know in what light they are making their statements. Few seem to have the 'more than 10 years' view of current events.
Will the current events trigger a breakdown of global economy that cannot be repaired in 10 years? Maybe, but chances are that things go up and down in the short-term but in the long run, things go up. Or at least they pay some dividends :)

At least that is what I am hoping for.

So sticking to the plan and hoarding some more bank shares this month.

Hope this gives some motivation to other people starting out in building their own future :)

Disclaimer. I am in no way an expert on capital management or investing. On this blog I only wish to share my findings, ideas and comments on current events and fields that interest me. I hope that my thoughts can entertain you. I expect that everyone reading take their time and do their own research before acting on anything read on this blog. Investing is not for everyone. E&OE.

tisdag 29 november 2016

Financial Freedom

woman in a canoe on a lake
Financial freedom, and how to achieve it. In previous posts I've tried to tell our story and how we gained a little peace of mind regarding the issue.
I know that my better half tends to linger on the subject of money and still stresses a bit for example if one of us is sick and would receive a smaller paycheck the coming month. But during the 2 years that we have followed the plan, we have started to figure out that we can manage through quite a bit of financial stress and even though we still think about it (a good thing), we are not stressed about it.

So how to reach it? How to stop stressing about money? I guess it depends on who you are, but for most just starting a savings account and buffer could do the trick.

A lot of people argue that they cannot afford putting away money. It seems to be the same kind of people that argue that they cannot change any of the situations that they are currently in. But you know, strength of character cannot be taught. And if an individual is not ready to make a change, then it cannot be pushed upon them either. It is a bit like the old proverb (or maybe not so old)
When the Student Is Ready the Teacher Will Appear
It is a little like trying to stop smoking, most people know that smoking is a bad habit and know that they should probably quit. But, a big but, they have not made the decision to quit. A whole business area is built around the fact that people know they should quit. And a lot of the advertising is rubbing in the fact that it is hard to quit without their products. In reality it seems that their product only prolong the addiction to nicotine in some way.
I have a lot of people around me that say that they will quit next week, they will quit together with someone else, they will do this and that. But nothing happens, as they have not made the decision. They have not owned the problem. For us, when we quit it was quite easy when we made the decision. It actually didn't take that much strength.
And my view of things it is the same thing with your financial freedom. When you decide that you need to do something about it, the change will come naturally.
Maybe you end up selling stuff on e-bay just to get started but you will do it for yourself and by your own free will.

But I guess that if you are reading by blog you are already interested in the subject. :)

Until next time: Work to Live, Don’t Live to Work

Disclaimer. I am in no way an expert on capital management or investing. On this blog I only wish to share my findings, ideas and comments on current events and fields that interest me. I hope that my thoughts can entertain you. I expect that everyone reading take their time and do their own research before acting on anything read on this blog. Investing is not for everyone. E&OE.

torsdag 24 november 2016

Extra income, Christmas times


winter landscape in the evening, snow covered trees and a little hut with lights in the window

It's that time of the year again. I'm not much of a holiday person myself, but my better half has a real thing for it.
So this weekend we will participate at a Christmas market at a local farm house. The idea, is to sell a lot of stuff. From wooden Santa's to home made candy and homemade bird food..
So. Just thought that I'd share, if you have the time and the know-how then look around the country-side of where you live to find something similar and see if you could participate as a seller. (few refuse if you are really interested.

So some things to keep in mind when preparing (learnt from previous years)
  • Make sure you know the opening hours, in our case its 4 hours.
  • Make sure you have enough items to sell for the whole opening hours, if you sell out the first 15 minutes chances are that you are not welcome next time.
  • Ask how many people are expected, and past experiences from previous years
  • Bring extra change, ask around if you are unsure.
  • Set prices at even intervals, for easier money handling. I.e. $2 instead of $1.95
  • Be ready to use new technologies, in Sweden for example Swish is an excellent compliment to cash handling.
  • Be sure you know about local regulations, and taxes that might affect you. It is your responsibility, not the arranger.
  • If you say it is home-made, be sure that it is.
If your participation goes well, be sure to check for other happenings. Many venues have family days in the spring and maybe a harvest market in the fall. 

That's all for this time. Hope this gave you some ideas.For more ideas, check out my other post on Tips to finding extra income sources!

Good luck!

söndag 20 november 2016

Financial institutes and how they create money (Insurance Companies)


This is part of a series of posts, be sure to check out the other ones too:



  • Banks
  • Investment banks
  • Insurance companies


  • The time has come to another financial institute that most of us has some kind of relation to:
    The Insurance Companies.

    The basics

    Insurance is a means of protection from financial loss. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.
    -Wikipedia
    So, people and companies pay a set amount of money (premium) each year, to safeguard against a specific type of risk (for example car accident). If the risk becomes real, a claims request is sent to the insurer, who then pays the damages.

    Investment companies receive money in the form of premium payments from their customers. And at another point in time, they have to pay out claims.
    The naive way to think about these kind of companies would be that they create money by overcharging the premium part so that the total claims during a year would be smaller than the total premiums.

    Modern insurance companies

    The modern insurance business does not actually profit from the premium/claims difference but instead by taking advantage of the time difference between a premium paid and claims received.
    The idea is to collect a lot of premiums into an investment pool and then invest that into guaranteed and/or low risk papers, shares etc.
    When claims are received, they liquidate (cash-out) a part of the total investment and move that money to handle the request.



    Disclaimer. I am in no way an expert on capital management or investing. On this blog I only wish to share my findings, ideas and comments on current events and fields that interest me. I hope that my thoughts can entertain you. I expect that everyone reading take their time and do their own research before acting on anything read on this blog. Investing is not for everyone. E&OE.

    tisdag 15 november 2016

    13 Free stock photo sites

    woman looking in binoculars over a snowy field

    OK, so you decided to start blogging. But a blog with just text is kind of boring in the long run.
    Free stock photo sites to the help. 10 years ago it was a real pain to find quality free stock pictures but today with the help of the Creative Commons Zero (CC0) licencing model it is a joy. And you always know that you are legally on the right side of the law.

    Short intro to Creative Commons Zero

    First of all, link to the license itself.
    https://creativecommons.org/publicdomain/zero/1.0/

    Short summary. If you find an item with this license you are allowed to:
    You can copy, modify, distribute and perform the work, even for commercial purposes, all without asking permission. 
    Be sure you read the full license before you start using it, it is not long.

    Sites that share high quality pictures as CC0

    Be sure to read up on the license model that each site uses.

    pixabay.com

    stocksnap.io

    www.pexels.com

    Sites that share pictures as public domain

    unsplash.com

    publicdomainpictures.net

    splitshire.com

    1millionfreepictures.com

    viintage.com

    www.gratisography.com

    littlevisuals.co

    pdpics.com

    pickupimage.com

    publicdomainarchive.com


    onsdag 9 november 2016

    My Current Plan, 2016 November


    This month, it seems like the media around the globe has gone nuts regarding the US presidential election. Here in Sweden, it is actually hard to find local news.
    Prior to the election day, media spun up a scenario where the markets would plummet if Trump won. Quite the doomsday prophesies, a lot of backstory where everybody seemed to agree that Clinton would win.

    And this morning, 15 minutes before the Nasdaq OMX Stockholm market opened, it was clear that Trump was elected the 45th president of the United States, The headlines were:'Shock! Markets will plummet!", and at 0900 the markets opened and it was basically business as usual. As always the analysts seem to read a negative 1% as something huge and try to make it into something that it is not.
    Now, 10 hours later the headlines are:
    Looks dark for Swedish companies
    Svenska Dagbladet
    Aptite is back on Wall Street
    - Dagens Industri
    Some optimistic, some are still pessimistic and some news outlets focus on the recent snow clouds in Stockholm.

    What amazes me is how much the media can spin the stories. Are people actually surprised and shocked? Or is it just the media that expects people to be shocked? It seems like the market learned from the brexit vote, but the media didn't.
    Once again it seems that the modern day journalism leaves a lot to wish for.

    So how does all this affect my investment plan?

    Not at all.
    To quote Warren Buffet:
    Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.
    - Warren Buffet
    Meaning that I bought this months ratio of shares in my favorite bank earlier this week. Swedish banks are rising after a year of red.. But I don't really care as I have my plan. And it contains a lot of buy and very little sell over a very long time period.
    If the markets react negatively to for some reason, Trump or other, I have the possibility to act on that disaster opportunity by using some of our ordinary savings account. But for the time being, nothing like that is planned.

    So sticking to the plan

    Hope this gives some motivation to other people starting out in building their own future :)

    Disclaimer. I am in no way an expert on capital management or investing. On this blog I only wish to share my findings, ideas and comments on current events and fields that interest me. I hope that my thoughts can entertain you. I expect that everyone reading take their time and do their own research before acting on anything read on this blog. Investing is not for everyone. E&OE.

    måndag 7 november 2016

    How to read an Annual Report part 2: Dividend

    woman readon on a tablet. how to read an annual report the dividend perspective

    This is part of my series on The Annual Report. Please read the other posts for other perspectives on the matter:

    How to read an Annual Report part 1: Management
    How to read an Annual Report part 2: Dividend

    Introduction

    So, we have had a look at the management teams of the companies and what to look at there. The question is still, how do we differentiate long term, solid companies from junk companies in an easy way that doesn't require a lot of time. The answer might be dividends. Lets look at the details.

    Companies that don't pay divided

    The are numerous reasons for a company not to pay out any dividends, maybe they are in an expansion phase, researching a new product, acquiring businesses etc.  This is all well and good, the question we should ask as long term investors is:

    Is the management team creating more value for us by keeping the cash in the books instead of paying it out in dividends?

    For me, to answer this question would take too long to analyse and research. I.e. going back in reports and looking at the returns over a longer period of time. And that is basically the one reason why I don't invest in them.
    Other reasons why I keep away is because when my money making machine build phase is over, I would like to be able to live on the returns. If the companies I own don't pay out dividends I would have to sell my shares, bit by bit to be able to make a living and that just feels wrong.

    Companies that pay dividend

    So, we have now filtered out a big chunk of companies that don't pay dividends. Lets look at the ones that do.
    For a company to be able to pay a dividend it requires that it must have a revenue stream that is higher than the cost of operations. The management team must be confident that they will be able to continue with operations even after the dividend is paid. To be able to pay dividends, year after year the companies must adapt to all sorts of challenges that the world throws at them, from financial crisis to acquisitions. Everything the company does, must pay itself. The company can't afford to throw away money.

    So, companies that pay dividend are good. How do we know that they will continue to do so? As with mutual funds, we can't predict the future by looking at past performance. There is always a risk. But dividend companies have one thing that stands out: Shareholders don't tend to like them if they mess with the dividend policy.
    And that is why so many companies make an extraordinary effort to pay the dividend. If they don't do it one year, it sends out strong signals that things are not in order and many larger institutional owners tend to sell when it happens, making the share drop.

    If the company has paid dividends for a decade, we should be interested.

    Companies that raise dividend

    So dividend payers are great companies, but what makes companies stand out even more from the competition? Companies that raise their dividend year after year. To be able to raise a dividend year after year, the operations must be optimized. And just like with the dividend payout itself, shareholders tend to not like it if a company changes its dividend payout plan and doesn't raise it for one year.
    There is even a name for companies that have raised their dividends for 25 consecutive years, they are called Dividend Aristocrats.  Its a thing, it is part of the company's image. The company is a dividend raiser and most of them are quite proud of that and it takes something out of the ordinary to change that. For example the financial crisis in 2009, the list of S&P500 Aristocrats dropped 10 companies. From 52 to 42. Keep in mind that the whole financial sector was on the edge of collapse and still 42 companies managed to raise their payouts to shareholders. If you reinvested that cash during that year, you got a lot of shares for a bargain as the markets plummeted at the same time. I feel that I can trust a dividend raiser, they go the extra mile.

    Conclusions

    Of course there are companies that for various reasons stop or change their dividend payouts. Maybe that should be the signal for you to go somewhere else instead of the quarterly noise with missed expectations. If the company is still able to raise its dividend even after a 'failure', it is still a great company to own and most likely things will sort themselves out.

    I'm not that into numbers as you might have noticed on this blog, I'm happy to leave them out most of the time. But one thing that should be kept in mind when looking at companies that pay dividend is that if you re-invest the dividend payout, and the payout is higher each year. You will get some awesome compounding effects on your investment. The numbers go crazy after some years. I'll let you find the numbers on google yourself. :)

    A great place to start searching for dividend paying companies: The DRiP Investing Resource Center
    They have lists for various markets, US, Canada, UK and Sweden to name a few.


    Disclaimer. I am in no way an expert on capital management or investing. On this blog I only wish to share my findings, ideas and comments on current events and fields that interest me. I hope that my thoughts can entertain you. I expect that everyone reading take their time and do their own research before acting on anything read on this blog. Investing is not for everyone. E&OE.

    onsdag 2 november 2016

    Work to Live, Don't Live to Work

    woman dressed in black jacket and black cap seemingly happy with life

    Six years ago I worked in another city and spent 2 hours each morning and evening to commute and putting in the extra effort every time it was needed. After a summer vacation when I sat down in my car I wondered what the hell I was doing with my life. As the fall moved on I decided to look for a new job and found one 10 minutes from home. It was one of the easiest decisions in my life to just take it.
    The day before I signed the new contract I ended up in a meeting with my current manager, it was the kind where you try to figure out what your future is at the company. After 45 minutes of me trying to not answer straight we decided to discuss the elephant in the room. I told her that I was going to take another job and probably hand her my resignation the day after tomorrow.
    It turned out that she was a good boss, and she understood and told me to remember that
    We don't live to work, its the other way around. We work so that we can live.
    After that we had a quite good and relaxed discussion about life in general and future plans.

    Thought I'd share, maybe it motivates someone out there. For me, it was the advice I needed and it has helped me with work/personal balance questions from that day onward. :)

    Take the first step to financial freedom: Stabilize your economy
    And remember that life is short.

    måndag 31 oktober 2016

    The power of compounding

    stack of coins in front of a clock

    I tend to keep away from actual numbers on this blog, mostly as they are not my strong suite and that I want to the readers to do their own homework.
    So lets see how that goes when we will cover the subject of compounding.

    Introduction

    Compounding is the idea that when you receive interest on your investment and reinvest it you will start to receive interest on that interest as well. And next year, you will add another round of interest and so on. After some years, the snowball starts to build itself faster and faster.
    This is the reason why you should reinvest your returns, be it interest rate or dividend payouts. The numbers go crazy after a few years.

    One time investment: Savings account vs. reinvesting

    A very simplified scenario. Say you invest 100000. And each year, you will receive 6%. The following table shows the growth with and without reinvestment, i.e. compounding for the first 25 years. I.e. plain is your savings account with 0% interest.

    year savings account reinvested
    1 100000 100000
    2 100000 106000
    3 100000 112360
    4 100000 119101
    5 100000 126247
    6 100000 133822
    7 100000 141851
    8 100000 150363
    9 100000 159384
    10 100000 168947
    11 100000 179084
    12 100000 189829
    13 100000 201219
    14 100000 213292
    15 100000 226090
    16 100000 239655
    17 100000 254035
    18 100000 269277
    19 100000 285433
    20 100000 302559
    21 100000 320713
    22 100000 339956
    23 100000 360353
    24 100000 381974
    25 100000 404893

    The difference is a whooping 304893. Just by locking in your money and reinvesting each year the original investment has grown 4 times!
    OK, the example is a little biased against the savings account. So lets look at a more realistic calculation.

    Continuous investment: savings vs reinvestment strategy

    In a more realistic scenario you would continue to invest new money each year, say 30000 per year the numbers would be the following:
    year savings account + additional savings reinvested + additional investment
    1 100000 100000
    2 130000 136000
    3 160000 174160
    4 190000 214610
    5 220000 257486
    6 250000 302935
    7 280000 351111
    8 310000 402178
    9 340000 456309
    10 370000 513687
    11 400000 574509
    12 430000 638979
    13 460000 707318
    14 490000 779757
    15 520000 856542
    16 550000 937935
    17 580000 1024211
    18 610000 1115664
    19 640000 1212603
    20 670000 1315360
    21 700000 1424281
    22 730000 1539738
    23 760000 1662122
    24 790000 1791850
    25 820000 1929361

    The difference now would be 1109361. That's a lot of money.

    Living on the yearly returns


    If you, like me, plan to live on the returns from your investment, given the above numbers the following would be paid out per year if you stop reinvesting.

    yearssavings
    account
    savings account 
    + additional investment
    reinvestedreinvested 
    + additional investment
    10030000 for 10 years1013730821
    15030000 for 15 years1356551393
    20030000 for 20 years1815478922
    25030000 for 25 years24294115762
    30030000 for 30 years32510165062
    Savings accounts: you would need to do withdrawals to get any money as most accounts have 0% interest rates.
    After 10 years, the reinvesting plus additional investing will generate an extra investment unit of 30000 per year by itself. And after 25 years, it adds the initial investment each year!
    And going from 25 to 30 years adds another ~50000 per year.

    Conclusion

    I know my plan. Continuously invest and reinvest all dividends! Event if the 6% per year rate is just fake and in reality it would be different depending on a number of variables, taxes, costs, market fluctuations etc. But the effect of interest on interest on interest over and over again is just something that must be leveraged in any long term investment plan.

    Hope this helped a little bit in showing how this effect works :)

    Disclaimer. I am in no way an expert on capital management or investing. On this blog I only wish to share my findings, ideas and comments on current events and fields that interest me. I hope that my thoughts can entertain you. I expect that everyone reading take their time and do their own research before acting on anything read on this blog. Investing is not for everyone. E&OE.

    måndag 24 oktober 2016

    Financial institutes and how they create money (Investment Banks)


    Let's continue the journey through different financial institutes and figure out how they make money.
    Be sure to check out the other posts in this series:


  • Banks
  • Investment banks
  • Insurance companies
  • This time we focus on investment banks.
    These are not the banks that you come into contact with as a consumer. . Other than advisory services, investment banks do their own trading in the market and earn money that way.

    Advisory

    Investment banks are advisers primarily focus on corporations and help them with mergers and acquisitions. Generating large sums of money to the bank as the transactions are huge and they cut into it on a percentage

    Sales

    The sales divisions of investment banks are occupied with creating and selling product with the help of underwriting.
    By performing an underwriting, the bank assesses the risks and figures out a price-tag on the product. When bringing a company to the market (initial public offering) they also raise money from investors.

    How do they make money here?

    They act as middle men. They buy up all the stock of the new company prior to introducing it to the market. Then, when the new share goes public they profit on the price difference. I.e. what they bought the stock for prior to going public and the price that they go public with. This can be a very large sum.

    There are a number of products other than new companies that are created by the investment banks. Basically, if you come up with an investment, an investment bank will calculate the risks and give you a price tag for that investment. For an fantastic movie on the subject, you have to see The Big Short.

    Conclusions

    Well, the same as for banking in general. Investment banks take calculated risks for profiting. Sometimes on the greater good, other times on the greater stupidity. 
    Is it wise to invest in investment banks? Same as for banks. Maybe, you have to do your own research and find out if you can live with the pros and cons of profiting off an investment bank.

    Sources

    https://en.wikipedia.org/wiki/Investment_banking
    http://www.investopedia.com/terms/i/investmentbank.asp
    http://www.imdb.com/title/tt1596363/


    Disclaimer. I am in no way an expert on capital management or investing. On this blog I only wish to share my findings, ideas and comments on current events and fields that interest me. I hope that my thoughts can entertain you. I expect that everyone reading take their time and do their own research before acting on anything read on this blog. Investing is not for everyone. E&OE.

    tisdag 18 oktober 2016

    How to read an Annual Report part 1: Management

    woman readon on a tablet. how to read an annual report the management perspective
    The one key indicator of how well your business is performing is The Annual Report.

    Before putting your hard earned money into a business, make sure that you read up on the annual reports for the at least the last 5 years, preferably the last decade. This may sound like a lot of work, but you want to get a picture of the business before handing over your cash. In the end, it is better to discard one too many companies than invest in a rotten one.

    This is part of my series on The Annual Report. Please read the other posts for other perspectives on the matter:

    How to read an Annual Report part 1: Management
    How to read an Annual Report part 2: Dividend

    Management perspective

    Let's start with the part that usually comes in the beginning of most reports. This is the part where the chairman of the board and CEO (chief executive officer) make tell you their view of the business. They should go over major events of the past year and tell their plans for the future.
    By reading up on the past decade of reports, you should get a pretty good view of how trustworthy the top management is in what they tell their shareholders.

    Is there passion?

    Do you want the management team to passionate about the company, or only their own careers? Passionate people take the extra step and put in the time that is needed to get things going.

    Do they include not only the positive side of the story but also the negative? 

    All years are not success stories, that's the way of life. If it is a trend that every year is only described in positive terms in the report then maybe there is something left out.

    In my mind this should be a deal breaker if the chairman and CEO leave things out in the communication to the shareholders, then maybe you should go find another business to invest in.

    Are they focusing on the share price or on the value generating streams in their business?

    If the main goal for the top management is the market price of the company, maybe it does not suite your long term investment plans. In other words, if you try to ignore the whims of Mr Market, shouldn't the businesses that you invest in do the same?

    Management Turnaround

    Is there a continued red line in the management? Does the CEO change every year?
    You should be able to trust the management in your investment and trust is hard to build up.
    Is the top management invested in the business (this may not be clear in a report, check the Insider Trading lists of your market to find out more)
    Of course you cannot expect that a CEO stays a decade in the same company, there are numerous legitimate reasons to change the CEO and even the Chairman but in the long run, it should not require detective work to figure out the red line in the management structure.

    Fulfillment of goals

    Goals that are set one year, are they followed up and in the end fulfilled?
    Here's the reason you should read back on annual reports over a longer period of time. You get the backstory. If the management is new, look up what other companies they have worked on and if they got things done there.

    Conclusions

    In the end the question to ask is:
    Do you trust these people to operate your business on a daily basis.


    Disclaimer. I am in no way an expert on capital management or investing. On this blog I only wish to share my findings, ideas and comments on current events and fields that interest me. I hope that my thoughts can entertain you. I expect that everyone reading take their time and do their own research before acting on anything read on this blog. Investing is not for everyone. E&OE.

    fredag 14 oktober 2016

    My Current Plan, 2016 October


    As I've hinted in previous posts, I don't follow the diversified investing strategy or invest in index funds myself. I still think that that is the best risk averse way to invest, perfect for your retirement plan or when you are saving for your kids and most of all when you do not want to put any real time into it.

    That being said... I have too much time..

    So, after reading a lot on the subject. Going through Graham, Buffet and numerous books that I don't remember the names of, that could be the subject of another post I devised my own strategy.
    So lets go through the overall ideas that influenced me to form my own plan.

    There is no one way to wealth, everyone do it in their own way

    Some preach diversification, others are into value investing and then again others only want dividend payers. Buy only companies that are cheaper than the money they have in the bank, or buy into big well proven companies that are stable. Buy and hold or Buy and sell?
    So there is no single path to riches.

    There is no such thing as market timing.

    At least not in the long run and I am in it for the long run.
    This seems to be the least common denominator that everyone agrees on. Everyone meaning the authors and investors that have a horizon of a decade or five.
    Graham didn't have to time the market as he basically bought the whole basket and then micromanaged that portfolio to see when things were ripe for harvest. Others buy at a nice price (not always the best) and hold the investment for a long period and see it grown.

    What I look for

    Management
    Do I trust the management to drive the company forward into a money maker for me?

    Dividend payout
    I.e. a cash flow that can be re-invested. And when time comes, a cash flow that can substitute a full time job or 2. Best deal if it has a long term increased dividend strategy.

    I can figure out how they make money
    This is key. I don't want buy into a company if it is in a field that I don't know about. If it is unclear how the money gets created, then it is a no.

    A Great Company
    I don't want to go through the endless waves of small unknown companies that may become the next [insert any skyrocketing company here from your local financial news]. I want a boring old money maker with a well recognized brand that is out there and has 'always' been. Think Coca-cola.

    Does not ask shareholders for a cash-in from time to time
    Another no way. Steady long term business that is able to finance itself and pay a dividend.

    Not my employer
    I like my employer, I like working for them. But, a big but if.. If they go out of business and I loose my job, I don't want to loose my investment at the same time. Or the other way around. Just think about it. You see your investment go into ruins and the next day you get fired. Not an ideal situation. I don't buy my employer.

    Is  better than the ones I already have?
    If the proposed return of investment isn't better then from worst company I already own, then I might just as well buy more of the ones I know of.

    When to I plan to sell

    Never :)
    But honestly, no.. I do not have an exit plan. I do have an emergency plan for when the

    Management turns sour
    As time goes by, the management team of a company change their members or the bigger shareholders want a change and it may turn out to be in a direction that I am not comfortable with. When trust is lost, that's when I might sell. Emergency plan, not an exit.

    Until that happens, the market may do whatever it likes. If I trust my companies, then I'll hold on to them. Preferably for me would be if the market thinks the worst, as it just gives me an opportunity to buy more shares at a cheaper price.

    So. That was a summary of the strategy that I follow. Currently holding 2 companies and buying more of them every month. Until something better comes up, I'll stick to those two.

    Hope this gives some ideas to other people starting out in building their own future :)

    Disclaimer. I am in no way an expert on capital management or investing. On this blog I only wish to share my findings, ideas and comments on current events and fields that interest me. I hope that my thoughts can entertain you. I expect that everyone reading take their time and do their own research before acting on anything read on this blog. Investing is not for everyone. E&OE.

    måndag 10 oktober 2016

    Financial institutes and how they create money (Banks)


    I am trying to figure out how the different financial institutes earn their living.
    Be sure to check out the other posts in this series:
    Let's start with the ones closest to us: Banks

    History

    The idea of banking began some 4000 years ago in ancient Assyria and Babylonia. Over the years, they have picked up the different tools that they use today. Starting from loans, going to money deposits and exchange of currency.
    The first banks that resemble the ones we have today started out in Italy some 400 years ago. So, how do the banks make their money today?

    Money deposits

    People and companies need someplace to store their money, and banks are the number one place to do just that. They happily take your money and hand out an I owe you certificate. Today that is the number you see when you login to your bank account using your favourite web-browser or app.

    Loans

    This is the traditional way for a bank to generate revenue. Lend someone some money and collect it back with an interest rate at a later pre-defined date and/or interval.

    Transactions

    Banks can charge a transaction fee for services rendered. For example for letting you exchange money from one currency to an other. A fee on using your credit card, or for paying your bills at the bank instead of online. Most of these fees are small, but with the amount of customers banks have and the number of transactions committed on daily basis, these revenue streams grow quite big.

    Advisory services

    People have no clue what to do with the money they have or don't have. How should they invest it? How should they finance their new home? It is hard to see the difference between an advisor and a salesman. This is a grand opportunity for a bank to sell you even more of their services.

    Modern Banking

    So, how do modern banks really earn money?
    Today, banks don't just deal with money. They have incorporated many other financial forms in under the same roof. Get a better house loan if you move both your service and savings accounts over to them. And even better if you also get the insurances from the same place.
    It is also common for a bank to have its own investment division. Meaning that your personal banker can advise (sell) you to invest in a product owned by the bank and thus generate even more revenue.

    Tailored loans where interest rates are based on the credit worthiness of the subject allows for lower interest rates for those that are more likely to pay it back and higher interest rates for those that may not be able pay it back it full.

    Investment banking

    Are not the banks that you come into contact with as a consumer. Investment bank advisers primarily focus on corporations and help them with advisory services for a certain fee. They also trade in the market. I wan't to learn more on investment banks so I'll dedicate a post of its own to them.

    Central banks

    Central banks are connected to a country or group of countries. Their primary activity is to manage the stability of a financial region. They are more political than actual everyday banks. This is done by trying to control inflation with the help of interest rates.

    Conclusions

    When you start to think of the spiderwebs that banks weave around their customers, it is hard to see how people actually manage to have anything left at all. And in some cases, the banks owns everything.
    But one thing is sure, banks will find ways to make money no matter how the market turns. But investing in a bank means that you have to live with profiting on other peoples losses. But not all banks are bad, it's just hard to find the good ones.

    Sources

    https://en.wikipedia.org/wiki/Bank
    https://en.wikipedia.org/wiki/Loan
    https://en.wikipedia.org/wiki/Bureau_de_change
    https://en.wikipedia.org/wiki/Central_bank
    http://www.investopedia.com/terms/b/bank.asp

    Disclaimer. I am in no way an expert on capital management or investing. On this blog I only wish to share my findings, ideas and comments on current events and fields that interest me. I hope that my thoughts can entertain you. I expect that everyone reading take their time and do their own research before acting on anything read on this blog. Investing is not for everyone. E&OE.

    fredag 7 oktober 2016

    Tips on finding extra income sources

    revenue streams

    So far I have assumed that we have a fixed income from a day job to work with. When you start to get more interested and involved in investing you will soon notice that the investment potential of an ordinary paycheck is not that huge. How could we find additional streams of income that we can add to our investment?
    Lets look at some options.

    Reinvest your returns

    This should be a no-brainer, during the build phase of your money machine you should reinvest everything. For funds, many of them do this automatically and you don't have to think about it. If you are investing in common stock of businesses then there is a chance that there is a dividend payout from time to time. You should add this sum to your next investment.
    Over time, this approach together with your normal savings/investments should start to yield larger and larger return.

    Start a business on the side.

    If you have the know-how, why not monetize on it on your spare time? Register a small business and start doing extra jobs. Could be anything from photography and web-design to household chores.
    If things go well, this could turn out to become your main business in the future. And until then, put all returns into your investment portfolio.

    Garage sales

    Sell off some stuff that you do not need anymore.
    Advertise in a local newspaper and remember to figure out a pricing system that you want to follow on the big day.

    • Make sure that you have a permit if it is required in your area.
    • Bundle items. Lower valued items together with medium valued can boost the sell factor
    • If you have more valuable items, try researching a little to figure out the price-tag that you can put on them. But expect that people will haggle about the price no matter what.
    • Get extra change so that you don't stand there empty handed when someone hands you a large bill.
    • Put on price labels that are easy to read.
    • Use prices that match the change you have available at the start.
    • Make sure there is enough parking place outside of your house. If you have advertised, there can be a real rush and its not fun to see potential customers go somewhere else. If 5-10 cars cant park then try finding an other location. 
    • In the last 30 minutes, lower prices to get rid of the last things. You've already decided that you don't want it anymore, then turn it to a profit even if it is less than what you asked for in the beginning. 
    In the end, if you feel that you have got the hang of the haggling business, you could try starting a side business. Buying items from other peoples garage sales and then selling at your own. Its quite a lot of work but a fun way to meet people.

    Write

    If you have knowledge of a subject, why not write about it?
    For information on how to publish your own book, go to Writersdigest.com they have a large in-depth guide on the subject.

    If you instead want to write smaller articles that maybe not suite as a book, try out blogging.
    With the correct ad-placement you can turn it to a revenue stream as well. Key notes on blogging is to have a continuous publishing schedule to keep people coming back for more. This is something that I am not that good at. I tend to write a lot of articles and then have huge gaps until I get into writing mode again.
    If you have your own hosting, try out wordpress. Their free service does not allow advertising (as they put their own ads into your blog). If you do not have your own hosting, then blogger is the way to go.
    Also, make sure that you use high quality images that convey the subjects. Best are of course photos and images that you create on your own, but using one or two images from various free stock image sites can upgrade the quality feeling that you get at a glance.

    Another way to monetize on articles is to sell them to magazines, try contacting a magazine that writes in the field that you want to write in. Put together a portfolio (could be your blog) and send them a question if you could write for them.


    Good luck :)

    söndag 2 oktober 2016

    Step 3: Index funds


    This is step 3 of my private economy, saving and investing series. Be sure to read the other posts as well:

    Step 1: Stabilize your economy
    Step 2: Expectations and mindset
    Step 3: Index funds

    An index fund. The simplest way to invest in a diversified way.
    Lets start at the basics and look at Funds in general.

    What is a Fund

    An investment fund is a way to put together a sum of money from a number of investors and then investing that sum into some kind of financial resource, it could be common stock, bonds or more advanced instruments or a combination of all.
    Funds usually specialize in certain specific areas. For example geographical funds could be focusing on for example:
    • Japan
    • Asia
    • Eastern Europe
    • Asia excluding Japan
    • and so on
    Other funds specialize in different sectors. For example
    • Industrial
    • New technology
    The standard funds are usually managed by a business that takes out a fee for the trouble. The trouble being to decide what resources to invest in, when to invest and when to sell those holdings.
    Many funds are rated based on their performance, many are measured against how well they manage to beat the market. Meaning, how good was the manager in picking stocks and timing the market during the previous week/month/year.
    But there is a catch, nothing about their past performance can predict a funds future performance. Meaning that even if a fund did all the correct moves during last year, there is no way to predict if it will continue to do so.
    In recent years, there have been many scandals where these money managers basically hug the market index that they are measured against and still collect huge fees.
    So what to do? Managed funds have huge potential but at the same time there is a downside.

    The good:
    • Diversified investment
    • Professionally managed
    The bad
    • High fees that eat into your profits
    • By nature, fund managers want to beat the market and to do so they need to buy and sell the resources that they invest in. There is a risk that the fund will be worse than the average index.
    • There have been incidents where fund managers mimic the fund that their performance is compared to. And still take out high fees. Just make sure you understand the philosophy of the fund.

    The index fund

    So, why trust in a person/business to select what to invest in when you can buy into a fund that is automatically managed to mimic one of the market indices. As the fund is automatically managed, these funds usually have much lower fees.

    The good:
    • Diversified investment
    • Automatically managed / Passively managed
    • Lower fees
    • Not much trading in the underlying resources. Only when a company is moved out of the index and new ones are introduced.
    The bad
    • Booooooring. You just add money to the pile for a long period of time. Not a 
    • Easily automated, as it is just adding more money each month.
    • Other investors can foresee when a large index fund is going to sell or buy and thus do an index arbitrage. This affects the whole underlying index and thus, when comparing the funds performance to the index it is not seen. But it is something that exists, but should imho not really affect your investment.

    My conclusion

    When I started out investing I was a bit unsure what strategy to take so I followed the following:
    if you invested in a very low cost index fund – where you don’t put the money in at one time, but average in over 10 years –you’ll do better than 90% of people who start investing at the same time
    -Warren Buffet
    Ok, I haven't invested for 10 years so I have no way to prove the above statement, but when looking at historic data of indices it seems like this is the way to go.

    Disclaimer. I am in no way an expert on capital management or investing. On this blog I only wish to share my findings, ideas and comments on current events and fields that interest me. I hope that my thoughts can entertain you. I expect that everyone reading take their time and do their own research before acting on anything read on this blog. Investing is not for everyone. E&OE.

    måndag 26 september 2016

    How to make Homemade Apple Juice/Cider

    apples in the tree

    We've lived in our house for 2 years now and I've wanted to brew my own cider from day one. Last year our apple tree produced the might number of 3 apples in total, so no cider for me.
    This year, a totally different story as you can see in the picture above.

    This is the first time I try to do this so the process might not be optimal and I am sure that things could be done better.
    The goal of this post is to have at least one bucket that has started the fermentation process.

    Things you need

    work table rigged for apple cider production

    • Sturdy buckets, heavy duty. Not the $1 ones.. it has to be able to take a beating
    • Kitchen knife
    • Cutting board
    • Fruit press
    • Ladle
    • Some nails and a wood stud (45x45 mm)
    • Saw
    • Hammer
    • Fermentation bucket with a lid (I used 30 litres)
    • Fermentation lock
    • Yeast
    • Cup (for tasting!)

    First we need to create the tool to use for crushing the apples
    home made apple crushing tool
    The apple crusher
    There are many tools that can be bought for crushing the apples but why waste the hard earned money when all you need is some wood stud, a saw, a hammer and some nails to create your own crusher.
    home made apple crushing tool in action
    Home made apple crushing tool in action

    The process

    Apple juice flowing into a fermentation bucket
    Apple juice flowing into a fermentation bucket
    1. Collect apples
    2. Cut apples in 4-8 pieces depending on size, throw them in a sturdy bucket
    3. When you have a 2 or 3 layers of sliced apples it is time for the crusher. This part is good training.
    4. When you have crushed apples, Pour them into another bucket.
    5. Repeat steps 1-4 until you have a filled bucket
    6. Fill the fruit sack in the press, try pressing a little with the ladle
    7. Use the press
    8. Repeat 6 and 7 until you cannot move the handle
    9. Empty the fruit sack in your compost.
    10. Repeat until you have filled the fermentation bucket.

    The Yeast

    A fermentation bucket on a wooden floor
    Fermentation bucket in action
    Yeast eats sugar and produces alcohol and dicarbon oxide. The higher sugar rate of the in going liquid, the more alcohol there will be.
    The yeast is added to the fermentation bucket, read on the package how to do it. Some require some pre-activation steps. Also read what temperature your yeast works best in and store the bucket in that temperature.
    I decided to use champagne yeast for my batches. There are hundreds of different yeast cultures to chose from, but this felt right for me.
    Add the lid and the fermentation lock. Fill the lock with water to the line and wait.

    My plan is to do 3 batches. 

    picture of 223 grams of hops being weighted
    223 grams of hops being weighted
    • Über hopped apple cider (24 liters and 223 grams of fresh hops)
    • Hopped apple cider (24 liters and 70 grams of fresh hops)
    • Apple cider (just 24 liters)
    So. The first two batches need hops, luckily enough we planted some last year and it is ready for harvest now as well. We did a little pre-tasting of the hops last weekend and we think it could be cascade but I am not sure. We found it in a private garden and they did not know what kind it was.
    So, remember that I've never done any of this before so it is a little bit experimental. Reviews on the outcome will come later. 


    OK, so I could read up on how to dry hop cider but where is the fun in that. My best guess is to add the hops into the fermentation bucket after the yeast has been added, before the lid is put on. And then filter them out during after the fermentation is done. That way they should be protected from oxidation by the fermentation lock.

    Apples in a wheelbarrow
    Apples in a wheelbarrow
    So. Now to continue with batch 2 and 3, the wheel barrow is full and waiting :)