We finally have managed to get a UK national savings certificate worth about £40k that was in my father's name only transferred to my mother's name. My father died almost ten years ago. The truth is though that we didn't start trying to fix this till recently. My brother dealt with getting a lawyer etc. to complete the UK probate and get this sorted out. They wouldn't accept the inheritance documents from the country where my father died...
But now we have the problem of what to do with the certificate. They will only allow us to cash it out if we transfer the money to a bank in the UK. But my mother's bank, Lloyds (which I was once a customer of too*) is extremely difficult to deal with, even though my brother has a power of attorney. In my brother's words:
"the people in the branch don't really care and the call center is worse. They all stick very closely to the letter of their regulations. I have a limited power of signature there. They don't respect faxes, generally ignore letters, don't use email... in short useless. The problem appears to be that it is a regular banking account and they are not set up to work internationally. When I tried to make a transfer of GBP 700 to the UK lawyer for the probate they said I could only do it if a came into the branch, so I did it in the end from UBS..."
They'll only do anything if they talk to my mother on the phone but then they will likely decide that she is incompetent... So even closing the account seems impossible. To complicate things further, my mother still has a small pension that is paid into this account.
So it looks like we will keep the certificate renewing in her name now.
* My first bank account was with Lloyds. I entered some competition where they opened an account with £10 in it. That was back in 1983 I think. I got rid of the account some time around 1997 probably and no longer have any financial connection to the UK.
Showing posts with label Financial Autobiography. Show all posts
Showing posts with label Financial Autobiography. Show all posts
Sunday, February 26, 2012
Friday, December 23, 2011
Street Scenes from the Other Side of the World
Third post in this series:
1996-2002:
2007-Present:
The most noticeable thing about these pictures I think is the sunshine :) It's not been like that much recently.
1996-2002:
2007-Present:
The most noticeable thing about these pictures I think is the sunshine :) It's not been like that much recently.
Thursday, December 22, 2011
Another Continent
Street scenes from the other side of the ocean:
1990-1991:
1991-1992:
1992-1993:
1995-1996:
2002-2007:
Yes, when I was in grad school I ended up moving every year. Since then, I've been much slower to move.
1990-1991:
1991-1992:
1992-1993:
1995-1996:
2002-2007:
Yes, when I was in grad school I ended up moving every year. Since then, I've been much slower to move.
Wednesday, December 21, 2011
Revisiting the Old Neighborhood
I was inspired by these posts to put up some pictures of places I used to live. The difference in my case is that they all look much the same as when I lived there and I'm twice the age of Ken! For three countries I've lived in I could just go to Google Earth and capture pictures. No need to actually travel :) So to kick off here is Britain below. I've tried to capture a feeling of the streets and I've just labeled them by when I lived there. It's pretty easy to guess where they are though :)
1964-1966:
1966-1983:
1989-1990:
1993-1994:
The only changes are really the models of the cars and in the 1966-1983 place the size of the plants in the gardens and the recycling bins.
1964-1966:
1966-1983:
1989-1990:
1993-1994:
The only changes are really the models of the cars and in the 1966-1983 place the size of the plants in the gardens and the recycling bins.
Tuesday, July 26, 2011
End of an Era
Soros to return all outside money to investors. I didn't realise that it was down to just $1 billion in outside money. The Alchemy of Finance was one of the books that got me interested in trading. In the end that didn't turn out to be a very productive thing for me to try to do, but it was fascinating.
Thursday, June 30, 2011
My First Professional Salary
Back in 1989 I got my first full-time professional job after I completed my master's degree. The salary was initially £10,500 p.a. I was a property market researcher/analyst. At a rough guess that would translate to about £18-19k today. At today's exchange rate that would be around AUD 28k p.a. which is about the minimum wage in Australia. Does this mean that I was really badly paid? Or that economic growth has resulted in all wages rising in real terms? Or that the Australian Dollar is really over-valued at the moment? Or have I underestimated inflation?
I don't think I was really badly paid as that was roughly the amount that a government department was willing to pay me at the time. I soon got a rise though to £12,500 p.a. when I found out that one of my colleagues was earning that higher amount while doing the same job. That's the reason that private employers don't like people to discuss salary. I've assumed an average of 2.7% p.a. of inflation. So I think it is a bit of a mixture of the effects of economic growth and the overvaluation of the AUD when I look at current UK salaries.
In my new job my salary will be AUD 144k. It's a pretty crazy number when translated into Sterling (£95k). Though I'm only at mid-career I don't think I will earn much more than this in real terms for the rest of my career, though there are a couple of pay points above this level on the academic pay scale. The only ways up would be to either go into a very high level admin role in the public sector, switch to private industry or get a similar job at a top US private university. I'm not at all keen on the first and doubt the latter is going to happen. At the moment, I'm not interested in the middle option either unless it was for a limited period of time.
But actually it is pretty typical for salary to peak at this point in life. People with a high level of education typical plateau from here on while this is the summit for people with lower levels of education.
I don't think I was really badly paid as that was roughly the amount that a government department was willing to pay me at the time. I soon got a rise though to £12,500 p.a. when I found out that one of my colleagues was earning that higher amount while doing the same job. That's the reason that private employers don't like people to discuss salary. I've assumed an average of 2.7% p.a. of inflation. So I think it is a bit of a mixture of the effects of economic growth and the overvaluation of the AUD when I look at current UK salaries.
In my new job my salary will be AUD 144k. It's a pretty crazy number when translated into Sterling (£95k). Though I'm only at mid-career I don't think I will earn much more than this in real terms for the rest of my career, though there are a couple of pay points above this level on the academic pay scale. The only ways up would be to either go into a very high level admin role in the public sector, switch to private industry or get a similar job at a top US private university. I'm not at all keen on the first and doubt the latter is going to happen. At the moment, I'm not interested in the middle option either unless it was for a limited period of time.
But actually it is pretty typical for salary to peak at this point in life. People with a high level of education typical plateau from here on while this is the summit for people with lower levels of education.
Sunday, April 04, 2010
How Millennial are You?
How Millennial are You?. I only scored 19%. Which is exactly the expected score for my age (45). Having two blogs and LinkedIn and Facebook pages etc. didn't help me :( And I didn't read a newspaper in the last 24 hours. I did watch more than 1 hour of TV though. Snork Maiden scored 53% which is a year or two below the average for her age (34).
Monday, May 04, 2009
April 2009 Moominvalley Report
This month saw one of the largest gains in net worth in dollar terms USD 31,220 (second biggest after April 2008) and was the biggest percentage gain in USD terms (14.31%) since October 2001. Not so spectacular in Australian Dollar terms - a gain of $A26,968 (third biggest after August 2008 and October 2001). Only a 9.22% gain in USD. What happened in October 2001? I quit my job at the university I'm now again working at (well it was the end of my contract but I still got a substantial termination payment). And the stock market was rebounding from the September 2001 low. This time we are also in rebound mode, I got my first pay (2 months worth) for my new job, Snork Maiden got paid 3 times for the month and we got some refunds for trips from her employer (which we make money on effectively). The crisis feeling has certainly relaxed. But at this point in 2001 it looked like the bottom was in the stock market too...
The following is based on the available data as a couple of funds as usual won't report till near the end of the month, when I'll give a final asset class performance report. As usual everything is in US Dollars unless otherwise stated.
The MSCI World Index rose 11.90% in USD terms and the SPX rose 9.57%. We gained 12.33% in USD terms (6.30% in AUD terms). Performance was strongest in private equity (34.66%) followed by US stocks (10.42%) and the Australian Dollar gained. Leverage also helped for a change. Alpha measured against the USD MSCI was 3% with a beta of 1.16 currently. Beta has had some crazy fluctuations through the financial crisis:
We spent $6,153, which is very high. More than $2,000 was on flights for four people and accommodation in Queensland (upcoming trip). Actually, we spent $3,189 from Snork Maiden's U.S. accounts which have been designated for expenses on the Snorkparents visit. No idea what we spent the other $1000 on apart from some restaurant meals in Sydney. So cutting that out, expenditure was pretty normal:
Transfer to super is my after tax contribution to my super account in a bid to get the government's "co-contribution".
As you can see from these accounts our retirement accounts and non-retirement investments gained about the same this month. Net worth reached $233k ($A319k). Asset allocation moved away from our target as Australian stocks gained strongly and the shares of everything else in our portfolio fell:
The main move I made was to reduce hedge fund exposure by selling some shares of Platinum Capital and to consolidate our U.S. brokerage accounts with Interactive Brokers, in the process paying off two small margin loans in Euros and Pounds. So our leverage continued to decline this month. Paying off credit cards also helped. We are now borrowing just 12 cents for each dollar of equity (we hit 38 cents per dollar at the peak) and including borrowings by levered funds we are borrowing 51 cents per dollar of equity. This measure reached 90 cents at the worst point.
The following is based on the available data as a couple of funds as usual won't report till near the end of the month, when I'll give a final asset class performance report. As usual everything is in US Dollars unless otherwise stated.
The MSCI World Index rose 11.90% in USD terms and the SPX rose 9.57%. We gained 12.33% in USD terms (6.30% in AUD terms). Performance was strongest in private equity (34.66%) followed by US stocks (10.42%) and the Australian Dollar gained. Leverage also helped for a change. Alpha measured against the USD MSCI was 3% with a beta of 1.16 currently. Beta has had some crazy fluctuations through the financial crisis:
We spent $6,153, which is very high. More than $2,000 was on flights for four people and accommodation in Queensland (upcoming trip). Actually, we spent $3,189 from Snork Maiden's U.S. accounts which have been designated for expenses on the Snorkparents visit. No idea what we spent the other $1000 on apart from some restaurant meals in Sydney. So cutting that out, expenditure was pretty normal:
Transfer to super is my after tax contribution to my super account in a bid to get the government's "co-contribution".
As you can see from these accounts our retirement accounts and non-retirement investments gained about the same this month. Net worth reached $233k ($A319k). Asset allocation moved away from our target as Australian stocks gained strongly and the shares of everything else in our portfolio fell:
The main move I made was to reduce hedge fund exposure by selling some shares of Platinum Capital and to consolidate our U.S. brokerage accounts with Interactive Brokers, in the process paying off two small margin loans in Euros and Pounds. So our leverage continued to decline this month. Paying off credit cards also helped. We are now borrowing just 12 cents for each dollar of equity (we hit 38 cents per dollar at the peak) and including borrowings by levered funds we are borrowing 51 cents per dollar of equity. This measure reached 90 cents at the worst point.
Wednesday, January 14, 2009
Social Class and Choice
A comment I posted on "Graceful Retirement" as part of the ongoing discussion about Meg's blogposts:
"I'm not too sure about the correlation you make between being born poor and choices. Poorer parents might not have very high expectations for their children but those children's opportunities are often limited by going to bad schools and hanging out with an unambitious crowd of friends. Children who have money to back them up can do things like graduate degrees in non-professional fields, being an artist, working for NGOs etc. without worrying about increasing their net worth. So I think it cuts both ways. I grew up what I considered lower middle class in England - compared to most of my middle class friends we had a smaller house, car etc. My Mom had a degree in classics and training as a nurse (came from a working class background in Australia and studied on scholarship). My Dad came from a relatively wealthy family in Europe but was a refugee/prisoner/factory worker in the Second World War and then gradually built a career as an engineer without a formal degree. So I think we had higher social class attitudes than our actual income/wealth. My parents were definitely ambitious for us to get well educated and my Dad was somewhat concerned that we don't study something he considered useless but there wasn't big pressure to follow some particular type of career etc. I ended up as a professor - I studied geography which my Dad thought was "useless" and economics and just followed the do what you like and are good at route without worrying much about the money. My brother studied civil engineering and then later switched to computer programming."
"I'm not too sure about the correlation you make between being born poor and choices. Poorer parents might not have very high expectations for their children but those children's opportunities are often limited by going to bad schools and hanging out with an unambitious crowd of friends. Children who have money to back them up can do things like graduate degrees in non-professional fields, being an artist, working for NGOs etc. without worrying about increasing their net worth. So I think it cuts both ways. I grew up what I considered lower middle class in England - compared to most of my middle class friends we had a smaller house, car etc. My Mom had a degree in classics and training as a nurse (came from a working class background in Australia and studied on scholarship). My Dad came from a relatively wealthy family in Europe but was a refugee/prisoner/factory worker in the Second World War and then gradually built a career as an engineer without a formal degree. So I think we had higher social class attitudes than our actual income/wealth. My parents were definitely ambitious for us to get well educated and my Dad was somewhat concerned that we don't study something he considered useless but there wasn't big pressure to follow some particular type of career etc. I ended up as a professor - I studied geography which my Dad thought was "useless" and economics and just followed the do what you like and are good at route without worrying much about the money. My brother studied civil engineering and then later switched to computer programming."
Monday, November 17, 2008
Savings
This chart shows in Australian Dollars my/our cumulative saving over the last twelve years. It doesn't include retirement saving and it completely ignores all investment income or losses. So it is purely the accumulated difference between non-investment earnings and spending. Unfortunately we don't currently have all this money as cumulative non-retirement investment earnings are negative. Retirement earnings, however, remain positive.
The big difference between the last bear market and the current one is I was spending far in excess of what I was earning then as well as losing on my investments/trading. This time we are actually saving a little.
The little spike in 2007 is where I added in Snork Maiden's savings and then we spent a lot when we moved to Australia.
Monday, November 10, 2008
Zimbabwe Crisis
Good series of photos on the hyperinflation in Zimbabwe. Nothing like photos to illustrate the craziness of hyperinflation. My Dad remembered the hyperinflation in Weimar Germany though he was only seven years old at the time. That was just as crazy. Most hyperinflations haven't gotten that bad. I wrote my undergraduate thesis in economics on Turkish inflation policy. The rate only got a little above 100% per year and I experienced the hyperinflation in Israel directly living through rates of 100-400% per annum. But those were relatively manageable compared to Zimbabwe, Weimar, and other ultrainflations.
Friday, September 19, 2008
Lloyds Bank
In the UK, Lloyd's TSB is taking over HBOS. My very first savings account when I was rather small was at TSB - Trustees' Savings Bank - later when I was about 18 I got an account with Lloyds - I entered some competition where they gave a prize of £10 in a Lloyds account. That was my first ATM card too - this is in 1982 or 1983. I think I also had a savings account with the UK Post Office. My parents also banked with Lloyds and my Mom still does. I shut my Lloyds account around 1997 after moving to Australia. Anyway, so Lloyds merged with TSB. Apparently they also took over Cheltenham and Gloucester Building Society where my Mom has an offshore savings account. I was beginning to worry about the money in that account, but it's reassuring that it's part of what seems to be one of the UK's strongest banks. I think my parents had a mortgage with Halifax Building Society - I remember visiting the branch in our home town of Sutton - it had a very peculiar smell. Halifax became HBOS and now will become part of Lloyds too. So in the end most of our UK financial institutions have all been rolled up into one.
Wednesday, August 20, 2008
Attitudes to Money and Gifts
As I've mentioned we're going to China later this year. Yesterday Snork Maiden's mother told her she wants to give her or us a total of RMB20,000 (almost $US3,000, which is a lot of money for the average person in China ) when we visit. Snork Maiden is then meant to give several thousand RMB to her grandfather and we also will pay for two family get together meals that are estimated to cost RMB2,000 a piece. What's left over - more than RMB10,000 - is for "spending money" when we are in China. From my perspective the arrangement is rather odd and I feel uncomfortable with receiving the "spending money". I don't understand the point of the gift to the grandfather - seems like fooling him that the money is coming from us rather than his daughter - though I'm sure that's not the intent. But anyway, if they want to do that, it's fine with me. Also I'd be happy if my parents-in-law paid for a wedding/get together celebration meal in China. Seems odd to give us the money to pay for it. But again if they want to do things that way it's OK with me.
I told Snork Maiden that I'm not so comfortable with the spending money arrangement. We've got the money to spend whatever we want in China. When I said that I think her parents may need the money, she said "my mother will spend it soon anyway, she can't have money lying around". Snorkmama and her husband receive government pensions - they both worked for government - which seem to cover all their costs and they own an apartment that the husband received when he retired.
Snork Maiden's parents already gave her a gift of money for "getting married" and we spent a lot less than that on the wedding, though more than that on setting up our apartment when we moved to Australia to live together. My mother also gave us a monetary gift for our wedding (as well as paying for herself and my brother to come to the other side of the world for the ceremony). So I have no problems with monetary gifts for specific events or regarding inheriting money. There's something though that I find culturally difficult with the "spending money" thing. I guess one thing is it makes me feel like they see us as children who need "pocket money".
The flipside to this, is that if and when Snork Maiden's parents visit us here will be spending money on them. I wouldn't think to give them cash to spend though. That would feel very peculiar for some reason whereas giving in kind does not for some reason.
My family have obviously different attitudes to money, gifts etc. which are result of both our cultural background, life experiences, and personalities.
Link to Snork Maiden's aka Yoyo's blogpost on this.
Tuesday, July 10, 2007
Visa Application Lodged
Anyway, yesterday, Snork Maiden finally got her visa application lodged for her work permit (457 Business Visa) for Australia. Her employer already was approved in nominating her, so this was her side the story. Much more user-friendly than the US, everything is online and no lawyers needed. Today she needs to work on setting up an appointment for a medical examination for the visa. Nearest approved doctors are 150 miles away but she'll phone them and ask for advice/recommendation and if necessary travel to them. My employer is worried about paying me on 15th July - seems they need a resignation letter to stop payment but there won't be one till Thursday evening after I meet the immigration lawyer. Thursday is her regular office hours for university clients. Otherwise, completed boxes are gradually piling up around the apartment and the next three days I will be mostly working on that. Last night I also put a trade on (short QQQQ and NQ). So far so good, but will be tracking that too. I'd taken a break from that after losing a pile of money in the first few days of the month, trading against the model.
If the lawyer tells me I need to leave the country I will probably fly out by Sunday or so and go to Israel to visit my mother and brother and family. I lived in Israel myself for several years. Our family is rather international - each of us has multiple passports in different combinations. I have British and Australian, while my mother has Australian and Israeli. My brother has all three. My father when he was alive was British and Israeli. He was born in Germany though, but lost his German citizenship (of course he could have reclaimed it after the Second World War if he had wanted to).
If the lawyer tells me I need to leave the country I will probably fly out by Sunday or so and go to Israel to visit my mother and brother and family. I lived in Israel myself for several years. Our family is rather international - each of us has multiple passports in different combinations. I have British and Australian, while my mother has Australian and Israeli. My brother has all three. My father when he was alive was British and Israeli. He was born in Germany though, but lost his German citizenship (of course he could have reclaimed it after the Second World War if he had wanted to).
Thursday, April 26, 2007
Paid Off Balance Transfer
I paid off my balance transfer on my Amazon.com Chase credit card. I've had a balance transfer for the last couple of years and have been rotating it around my cards. It's relatively cheap finance but I've decided I've had enough of messing around with it and I won't be doing any more balance transfers in the near future. It only amounted to about 1.5% of net worth at this point.
In other news, our lawyer phoned my brother to tell him our second property in eastern Germany sold and we should have our share of the money in the near future. Near future in legalspeak can be a near eternity :) When it's done it will finally close the lid on this saga that has been ongoing since 1995 and in the broader time scale a last vestige of our family's history in Germany. This property will be redeveloped, other buildings and family graves still stand, but we won't own anything in Germany anymore. In fact, we don't already except some money in a German government account.
In other news, our lawyer phoned my brother to tell him our second property in eastern Germany sold and we should have our share of the money in the near future. Near future in legalspeak can be a near eternity :) When it's done it will finally close the lid on this saga that has been ongoing since 1995 and in the broader time scale a last vestige of our family's history in Germany. This property will be redeveloped, other buildings and family graves still stand, but we won't own anything in Germany anymore. In fact, we don't already except some money in a German government account.
Thursday, March 01, 2007
The Day After
At this point it looks like the market is shaping up for a sideways day after the rebound in Shanghai overnight and smaller losses in European trading than Wall Street experienced yesterday. I put on a hedge trade - long 2 ES and short 2 NQ which is biased to the long side, but exited it at a loss as I had a meeting at 9:30 and it didn't seem to be doing well. It would have been in the money by now. So I guess I am just jittery after yesterday though I made plenty of money in the US market, but got slammed of course in Australia. I don't know the full extent of damage there as mutual fund prices are reported with a delay. Worst are probably the losses in resource stocks affecting my CFS Global Resources Fund which has about 10% in each of RIO, BHP, and RTP (those are the US tickers). The more hedge fund like instruments mostly responded better, though EBI.AX fell 5% and hedge fund manager EBB.AX fell 8%. I reckon I was probably slightly up yesterday overall, though I don't know how the short-term Australian Bonds in the CFS Conservative Fund (my biggest holding) responded. The Aussie Dollar fell and US bonds rose.
But I'm not worried that I don't have a trade on. I don't have to have a trading position at all times. I used to think of my short-trades as hedging my long positions and felt nervous if I didn't have a short when I thought the stock market might fall. But now I think in a much more "alpha-centric" way. Alpha are returns that are not correlated with stock market returns while beta reflects returns that are correlated with the market. I divide my portfolio into three sections:
1. Hedge fund type instruments that hopefully generate alpha. Sometimes some of these seem to have a bit more beta than I was reckoning on.
2. Beta - mainly long-only mutual funds whose return is mostly correlated with market returns and may have a positive alpha. It's no big deal if their alpha is negative to a small degree (one reason I am not worried about expense ratios which tend to reduce alpha) because I can generate alpha elsewhere in my portfolio. I change my exposure to these funds over the 4 year stock cycle. At the beginning of the cycle my exposure to stocks would be much bigger. I don't have to get my market timing perfectly right. At the moment I am 50-50 in bonds and stocks reflecting the late stage of the cycle which maybe now is heading towards the bottom - assuming that we need to see a 20% correction before the cycle is over. At the beginning of the cycle I will use leveraged stock funds and margin.
3. Short-term trading - I regard this now also as a generator of alpha. The trades are in ETFs or futures and so have a +1 or -1 correlation to the market while the trades are on. But the stochastic model has a zero beta coefficient to the NASDAQ 100 index. So in the long-run the returns are all pure alpha.
And of course I am also diversifed across US and Australian Dollars.
I've arrived at this strategy after a lot of experience and seeing what works and what does not and what I can tolerate emotionally. It's much more sophisticated than the standard "buy and hold" long-only models. I know I can't tolerate the fluctuations that that leads to. It was interesting seeing the responses of some newbie investors yesterday to the drop in the markets - which in the Dow was significant for a one day drop but was really not that much of a decline off the highs yet. I wonder how many will throw the towel in when we are down 20%? I started investing and trading in 1997 and have been through the high volatility of the 1998-2002 period. I also remember very well the crash in 1987 though I wasn't invested (I did buy a little in some Israeli mutual funds before then and was an undergrad economics and geography student) and even dim memories of the 1970s. Even then I was interested in investing and would discuss things occasionally with my father who was a long-time stock and mutual fund investor though he certainly wasn't wealthy then (we were definitely lower middle class in Britain) and read the financial news.
Anyway, here is what happened in one account, my account with Interactive Brokers:
You can see the big dip a couple of weeks back and then yesterday's recovery, followed by more erratic trading. My Ameritrade account would have a similar pattern. My z-score in NQ trading (total of 209 contracts traded) is now 2.03, which means that the probability that my performance is random or actually negative is something around 2%. The Kelly ratios though for both this and my weekly results in my IB account say that I should be taking on huge amounts of leverage. The Sharpe ratio for the weekly returns on my IB account is 1.68, which is a respectable number for a hedge fund.
But I'm not worried that I don't have a trade on. I don't have to have a trading position at all times. I used to think of my short-trades as hedging my long positions and felt nervous if I didn't have a short when I thought the stock market might fall. But now I think in a much more "alpha-centric" way. Alpha are returns that are not correlated with stock market returns while beta reflects returns that are correlated with the market. I divide my portfolio into three sections:
1. Hedge fund type instruments that hopefully generate alpha. Sometimes some of these seem to have a bit more beta than I was reckoning on.
2. Beta - mainly long-only mutual funds whose return is mostly correlated with market returns and may have a positive alpha. It's no big deal if their alpha is negative to a small degree (one reason I am not worried about expense ratios which tend to reduce alpha) because I can generate alpha elsewhere in my portfolio. I change my exposure to these funds over the 4 year stock cycle. At the beginning of the cycle my exposure to stocks would be much bigger. I don't have to get my market timing perfectly right. At the moment I am 50-50 in bonds and stocks reflecting the late stage of the cycle which maybe now is heading towards the bottom - assuming that we need to see a 20% correction before the cycle is over. At the beginning of the cycle I will use leveraged stock funds and margin.
3. Short-term trading - I regard this now also as a generator of alpha. The trades are in ETFs or futures and so have a +1 or -1 correlation to the market while the trades are on. But the stochastic model has a zero beta coefficient to the NASDAQ 100 index. So in the long-run the returns are all pure alpha.
And of course I am also diversifed across US and Australian Dollars.
I've arrived at this strategy after a lot of experience and seeing what works and what does not and what I can tolerate emotionally. It's much more sophisticated than the standard "buy and hold" long-only models. I know I can't tolerate the fluctuations that that leads to. It was interesting seeing the responses of some newbie investors yesterday to the drop in the markets - which in the Dow was significant for a one day drop but was really not that much of a decline off the highs yet. I wonder how many will throw the towel in when we are down 20%? I started investing and trading in 1997 and have been through the high volatility of the 1998-2002 period. I also remember very well the crash in 1987 though I wasn't invested (I did buy a little in some Israeli mutual funds before then and was an undergrad economics and geography student) and even dim memories of the 1970s. Even then I was interested in investing and would discuss things occasionally with my father who was a long-time stock and mutual fund investor though he certainly wasn't wealthy then (we were definitely lower middle class in Britain) and read the financial news.
Anyway, here is what happened in one account, my account with Interactive Brokers:
You can see the big dip a couple of weeks back and then yesterday's recovery, followed by more erratic trading. My Ameritrade account would have a similar pattern. My z-score in NQ trading (total of 209 contracts traded) is now 2.03, which means that the probability that my performance is random or actually negative is something around 2%. The Kelly ratios though for both this and my weekly results in my IB account say that I should be taking on huge amounts of leverage. The Sharpe ratio for the weekly returns on my IB account is 1.68, which is a respectable number for a hedge fund.
Monday, February 26, 2007
Suze Orman is Extremely Risk Averse
Suze Orman was interviewed today in the New York Times Magazine. I've read before about her extreme risk aversion. In the article she comments that her net worth is about $32 million allocated $7 million to owner occupied real estate, 24 million to municipal bonds (tax free), and $1 million in stocks. She says about the stocks that she put $1 million in them because if she loses it all it doesn't matter. There is no reason to be aggressive when you are as wealthy as she is. But her attitude that "you could lose it all" by putting money in stocks (you could lose 20% of it in a day based on historic precedent) is interesting and also that only 3% of her net worth is in that asset. This would make me less likely to take her advice.
But many people seem to be interpreting this comment in an exactly opposite fashion. This is also interesting. It might be related to what economists call "money illusion". Maybe talking about a million dollars not mattering is alienating to potential followers. I wouldn't like to lose $12000. But I've certainly lost more than that in a month. I even lost 3% of my net worth on a dumb trade in one day. The latter was not a pleasant experience to say the least. But in the larger scheme of things it didn't really matter. So losing a million dollars doesn't matter to Suze.
By investing in stocks to the degree I am I am setting myself up to potentially lose a very significant chunk of net worth. And that is what happened in 2002 for example. But I think it is worth taking on some risk for return.
P.S. For economics afficionados - if I feel the same way about losing 3% of my net worth as Suze does then I am assuming we must both have logarithmic utility functions. Which can't be true if she is more risk averse than I am.
But many people seem to be interpreting this comment in an exactly opposite fashion. This is also interesting. It might be related to what economists call "money illusion". Maybe talking about a million dollars not mattering is alienating to potential followers. I wouldn't like to lose $12000. But I've certainly lost more than that in a month. I even lost 3% of my net worth on a dumb trade in one day. The latter was not a pleasant experience to say the least. But in the larger scheme of things it didn't really matter. So losing a million dollars doesn't matter to Suze.
By investing in stocks to the degree I am I am setting myself up to potentially lose a very significant chunk of net worth. And that is what happened in 2002 for example. But I think it is worth taking on some risk for return.
P.S. For economics afficionados - if I feel the same way about losing 3% of my net worth as Suze does then I am assuming we must both have logarithmic utility functions. Which can't be true if she is more risk averse than I am.
Wednesday, January 17, 2007
Five Things You Probably Don't Know About Me
I finally got tagged by Clifford with this so-called "meme" that is all over the blogosphere. So here goes:
1. I was born on the same day as my mother. 33 years apart that is.
2. I've lived on four continents - at least five years on each. I guess that leaves Africa, South America, and Antarctica to go.
3. I rode my bike from Lands End to John O'Groats - the southwestern tip of England to the northeastern tip of Scotland and from London to Nice - across France.
4. I can read the Old Testament in the original language.
5. I hate mashed potatoes.
OK, who can I pick - most personal finance bloggers seem to have done this already. Here's a new idea - please comment on this post and either volunteer yourself or nominate someone else :) Like one of those committee meetings where everyone decides to nominate the member who didn't show up :P
1. I was born on the same day as my mother. 33 years apart that is.
2. I've lived on four continents - at least five years on each. I guess that leaves Africa, South America, and Antarctica to go.
3. I rode my bike from Lands End to John O'Groats - the southwestern tip of England to the northeastern tip of Scotland and from London to Nice - across France.
4. I can read the Old Testament in the original language.
5. I hate mashed potatoes.
OK, who can I pick - most personal finance bloggers seem to have done this already. Here's a new idea - please comment on this post and either volunteer yourself or nominate someone else :) Like one of those committee meetings where everyone decides to nominate the member who didn't show up :P
Monday, January 01, 2007
Accounts Restatement
As I am tidying up my accounting spreadsheets for the end of 2006 I am also fixing some issues from the last several years. The major issue was loans I made to friends in 2002-3 which I then cancelled in July 2004. I have now restated the loan payments to those friends as consumption expenditure for those periods. This results in lower net worth and higher expenditure in the 2002-4 period but also higher estimated investment returns as a given investment return is now attributed to a smaller capital base. I've gone back and updated all my NetWorthIQ entries. The following chart shows the MSCI World Index vs. an equivalent index for my own investment portfolio over the last decade:
Initially I was conservative and underperformed the index and then in recent years have generally outperformed the index - catching up to the MSCI index and then tracking it more or less. This pattern is also shown in the next chart which displays estimates of the alpha and beta of my portfolio over the last several years:
Each alpha and beta pair is estimated on 3 years of monthly returns data. Generally, my alpha - my excess risk-adjusted return - has tracked upwards. In earlier years I subtracted value while in recent years I have added 10-24% return above the market rate of return while taking relative risk into account. The linear regression line tracks this learning curve.
The final picture shows rolling twelve month totals for earning (salary etc. plus all investment returns on non-retirement and retirement accounts) and spending for the last 17 years:
The main feature is the lack of correlation between my earning and spending. I don't spend a lot more now than I did when I was a graduate student in 1990-93. And, these data are NOT adjusted for inflation. I spent much more than I earned in that period. The two big bumps in the spending profile are the periods when I moved to Australia from the US (1996) and then back to the US (2002). From October 2001 to August 2002 I was dependent on investment returns which at first were positive and then very negative. This combined with rising expenditure - including two round the world trips in three months in January and March 2002 resulted in the big fall in net worth in that period.
Initially I was conservative and underperformed the index and then in recent years have generally outperformed the index - catching up to the MSCI index and then tracking it more or less. This pattern is also shown in the next chart which displays estimates of the alpha and beta of my portfolio over the last several years:
Each alpha and beta pair is estimated on 3 years of monthly returns data. Generally, my alpha - my excess risk-adjusted return - has tracked upwards. In earlier years I subtracted value while in recent years I have added 10-24% return above the market rate of return while taking relative risk into account. The linear regression line tracks this learning curve.
The final picture shows rolling twelve month totals for earning (salary etc. plus all investment returns on non-retirement and retirement accounts) and spending for the last 17 years:
The main feature is the lack of correlation between my earning and spending. I don't spend a lot more now than I did when I was a graduate student in 1990-93. And, these data are NOT adjusted for inflation. I spent much more than I earned in that period. The two big bumps in the spending profile are the periods when I moved to Australia from the US (1996) and then back to the US (2002). From October 2001 to August 2002 I was dependent on investment returns which at first were positive and then very negative. This combined with rising expenditure - including two round the world trips in three months in January and March 2002 resulted in the big fall in net worth in that period.
Sunday, November 12, 2006
Inheritance
Claire is blogging again about money from family. I'm the first commenter on this post.
After reading some of the other comments on Claire's post I think there are some things that I should or could add. Somebody mentioned telling their parents what to spend. I certainly don't do that, except as I said in the post to tell my mother she is rich and can and should spend more money. I only advise on choosing other financial advisers and then work with them to make decisions on investments. My father asked my advice too while he was alive but never gave me any clue about how much money there was in total.
In the posts there is a strong emphasis on the merits of being self-made and self-reliant. I agree that these are very desirable. If I have children (I'm 41 now, but my father was 48 when I was born :)) it is probably something I am going to have to think about regarding them too. I know of cases where people who inherited money young were demotivated. The good cases seem mostly to share the trait that the children worked in the family business alongside the parents and eventually took it over. In my case I had no idea there was as much money as there is till I was 37 years old when my father died. We grew up very much at the lower end of the middle class. My father came from a formerly wealthy family - the main thing we inherited though then was attitudes to investment, risk, debt etc. I sometimes say he was nouveau pauvre - the newly poor and the exact opposite of the nouveau riche - the newly rich. His mother died in 1970 and legal battles among family took up many years after that. What he inherited was art and antiques. His father's family were in the art/antique dealing business. What he received was mainly inventory from his father's business. His father died in 1922 when my father was just 5-6 years old.
Over time he sold most of it. The final sale in 1996 was the biggest. These art works realised far more than the valuation. He was shocked how much he received. At the time he just told me it was much more than the valuation.
The point of this story is that people don't want their parents to sacrifice to leave them money. I fully agree with this. Our case is different in that the core of the wealth was handed down from the previous generation (the little we have salvaged actually - maybe this makes us more upper class than middle class however ludicrous that notion is), though my father saved plenty during his life time too. I think my mother should spend the income on what she has inherited. But she's not.
After reading some of the other comments on Claire's post I think there are some things that I should or could add. Somebody mentioned telling their parents what to spend. I certainly don't do that, except as I said in the post to tell my mother she is rich and can and should spend more money. I only advise on choosing other financial advisers and then work with them to make decisions on investments. My father asked my advice too while he was alive but never gave me any clue about how much money there was in total.
In the posts there is a strong emphasis on the merits of being self-made and self-reliant. I agree that these are very desirable. If I have children (I'm 41 now, but my father was 48 when I was born :)) it is probably something I am going to have to think about regarding them too. I know of cases where people who inherited money young were demotivated. The good cases seem mostly to share the trait that the children worked in the family business alongside the parents and eventually took it over. In my case I had no idea there was as much money as there is till I was 37 years old when my father died. We grew up very much at the lower end of the middle class. My father came from a formerly wealthy family - the main thing we inherited though then was attitudes to investment, risk, debt etc. I sometimes say he was nouveau pauvre - the newly poor and the exact opposite of the nouveau riche - the newly rich. His mother died in 1970 and legal battles among family took up many years after that. What he inherited was art and antiques. His father's family were in the art/antique dealing business. What he received was mainly inventory from his father's business. His father died in 1922 when my father was just 5-6 years old.
Over time he sold most of it. The final sale in 1996 was the biggest. These art works realised far more than the valuation. He was shocked how much he received. At the time he just told me it was much more than the valuation.
The point of this story is that people don't want their parents to sacrifice to leave them money. I fully agree with this. Our case is different in that the core of the wealth was handed down from the previous generation (the little we have salvaged actually - maybe this makes us more upper class than middle class however ludicrous that notion is), though my father saved plenty during his life time too. I think my mother should spend the income on what she has inherited. But she's not.
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