Thinking about money a different way - the latte factor

The latte factor. If you take what you spend on a latte every day ($5) and invest it over the course of a life time, then in 40 years you would be a millionaire (assuming a 10% annual return). Would you rather have a fancy cup of coffee or a million dollars? What little things in life can you do without in order to put more money into long term savings? Sounds simple right???

Here is my problem with that philosophy. It doesn't take into consideration the value of enjoying the coffee and it incorrectly treats having a daily latte or newspaper as if you are simply throwing money out the window. There are tangible benefits to these things, such as happiness or knowledge. What if a young Howard Schultz had saved a few bucks by not buying those Italian cappuccinos. He might be a millionaire by now, but instead he started a small coffee house chain called Starbucks and is a billionaire. Warren Buffet "wastes" $5 a day on 4 different newspapers subscriptions. He's worth 20 billion. Think he misses that extra million? I didn't think so. Who knows, maybe neither of these men would be where they are if it wasn't for their spending habits.

Its not that you should totally discount the theory, but you need to keep in mind that it isn't a waste. It's a trade. It's $5 that is exchanged for something you consume or for a piece of a company. The key is maximizing your decision. Go to the coffee shop, buy a paper, drink the latte slowly, read the business section, and make an informed decision for your investment. That way you can enjoy today and still be taking care of tomorrow.

Thanks for the read.

I've included some fun latte art below. Cheers.

fantasy football finance

It hit me this week, if you are good at fantasy football, you should be equally good at your investments.

If Peyton Manning has a bad game, that doesn't mean you're going to trade him or drop him on Monday. We know well enough that he is one of the best QB's in the history of the league and he more than likely will make up for it over the course of a season. So why do we get worried when a multi-billion dollar company has a bad quarter? Part of being a long term investor is being able to ride the waves. We all know this, but we can't help it.
Something else to think about. Every league has "that" guy who is always playing some one you have never heard of because he got a hot tip on a fantasy message board. He is annoying and it only works 1 time in 10. But he will rub it in your face when it works. "See I told you Seattle's back up running back was a lock, the starter has gotten injured 4 out of the last 6 Octobers, and they were playing in his mother's home state, too bad for you!!!" I mean seriously? It sounds so dumb, but how many of us buy into some hot stock or mutual fund with the same amount of credibility? When is the last time you heard Warren Buffet is buying a pharmaceutical penny stock that may be on the verge of curing restless leg syndrome? Never.
The guys (and girls, just using guy generically) who finish in the top quarter of their leagues every year are the ones who do a couple of things. They go with proven stars for their first few pics, the players with multiple seasons of great results who will end up scoring 80% of all your points. Then they go for value. This year Mark Clayton of the Rams was a good value depending where you could draft him. Nobody was talking about him, but he was playing with his college quarterback who as a rookie was going to start week 1. Who do you think Bradford was going to throw to as the Rams offensive line collapsed over and over? Or if you picked up LT further down in the draft. A hall of fame running back on a team with a good line and a young QB, could have been big time value. The guys/gals who finish at the upper end of investing do it the same way. A solid base of big time companies with long track records, no Ryan Leafs or Alex Smiths, and a keen eye for value companies that make logical sense.
I guess the irony in all this is that we will spend 10x as much time worrying about who to start on Defense this week than we will be thinking about the new fund options in our 2011 401ks. If only Schwab and Merrill Lynch would let us design our own logos.... Then maybe we would check it out more often.


Thanks for the read.
Wish me luck, just took over first place with 4 games to go. Gedubs all the way this year.

My big fat Greek Debting

Greece is in a world of trouble.... And it's only about to get worse. Why? Cause they are in debt, bad debt, big fat debt for a country with an economy based on tourism and agriculture. The popular description is that Greece is a slow moving train wreck.

There are several big obstacles that make it nearly impossible for them to come out of this.
One, because they are on the euro they don't have the luxury of getting free financing from themselves. 20 years ago they would have just printed more money to pay off their obligations, now the euro zone would have to approve that. Which would be political suicide for the German or French govt as the euro becomes devalued against the dollar with US investment banks shorting them the whole way.  Their credit rating is shot. Estimates on the Greek coupon rate are in the low 7's. So even if they could sell bonds it would only delay their fate. They won't make their interest payments and the notes will come due and that will be that. We are back to square one with Greece needing a euro zone bail out. Euro falls against the dollar and the US banks will either kill off the spread or will come in to bonds at a steep discount.  German probably wants to just let Greece fail, but that could lead to trouble for the rest of the PIGS. Portugal, Ireland, Greece, Spain. If one defaults, would the rest?  Well if you want to know just look at what has been happening to the sub-prime mortgages.  It becomes a domino effect.  Investor confidence is shaken and the cost for all troubled European debt servicing goes up if one country defaults.  Which, leads to more failure and...... you should know this already...... everybody loses.

My thought.  Seems like they are toast.  Maybe not.  I think their only chance is to have the IMF step in and have the Greeks agree to tighter fiscal regulation.  I don't think the US is buying those bonds.  Why would American's want to bail out Europe?  Didn't they add fuel to the currency fight with all this "the world's new reserve currency" talk over the last decade?  I don't know this may make me sound like an arrogant American but, Greece figure this out.  You may have to do some unpopular things.  People may have to work a little longer, you may have to cut some pensions, you may have to sell some islands, I don't know all the ends and outs but figure it out.  Don't come running to us with your hands out. The big US banks are not going to miss an opportunity to make profits on you and if you default.... it won't be pretty.  Maybe you should get ready to start seeing the following signs around town: the B of A Acropolis, the J P Morgan Parthenon, or the Goldman International Airport.

If all else fails you could always spray Windex on the debt

(you'd have to see the movie)

Thanks for the read

What's on my investing radar

I have 2 different sectors on my radar this month.

Basic Materials

ProShares Ultra Basic Materials (ETF) UYM
This fund invests in the basic materials that go into most products in our lives.  So paper, wood, aluminum, steel, …….  It is also geared towards a 2x performance of these goods.  So, if you see that things are heading up in the economy this is a great across the board play.
Up 15.35% since being added to my watch list on 2-11-10
The inverse play is ProShares UltraShort Basic Materials (ETF) SMN
Which is down -14.57% in the same time frame.

The other sector that is catching my eye is shipping.

Companies like Nordic American Tanker NAT are set up to take advantage of the turning economy and the rapid Chinese expansion.  Probably the most overlooked thing about these companies is the fantastic dividends that some of them pay.  That being said, watch out for Greece.  The country is home to about 1/4 of the worlds shipping companies, so I would pic individual stocks and not invest in a shipping ETF.
Shipping rates are going up.
And shipping companies are finding interesting ways to cut costs.

I am currently long on technology.