30 April 2008

Children Locked in Underground Dungeon in Austria

Link: "House of Horror" Children Never Saw Sunlight

I've heard about the news from Austria of a man named Josef Fritzl who sexually abused his daughter when she was 11. When she was 18, the girl was lured by her father into the basement. The father locked her up and kept her hidden in the basement for 24 years. During this time he continually raped her. The girl eventually bore seven children.

While all this was happening the wife and neighbors had no idea what was happening. The dungeon was soundproof and had an electronic keyless entry system.

What scares me is if this man can get away with this then anyone now can replicate what he has done. In fact, many people may have done so, and even today many children may be locked away in secret dungeons.

While I was walking around today I kept thinking that there may be a bunch of locked up children right underneath me and I wouldn't know.

This I think is the product of privacy. When men and women are free to do whatever they want in the privacy of their own homes, then the will practically have the freedom to produce their own children and molest them.

In this case, when the girl went missing the rapist father told everyone that she had run away. He then forced the girl to write letters begging everyone not to look for her.

When a child is missing, police should take into consideration the possibility that something like this might have happened and perform checks of the house. Sonar can be used to find cavities where dungeons may be.

29 April 2008

Jon and Kate Plus 8

I do not watch Oprah regularly. Let me just say that right away.

I came out of my bedroom to eat food because I was hungry. My older brother was watching Oprah, so I sat down on the sofa and ate while watching TV with him.

Oprah was on and it was about a couple, Jon and Kate Gosselin, who have eight children. There is a reality TV show about the family on Discovery Health called Jon and Kate Plus 8. Here in Australia we don't get that channel. Also, here in Australia hardly anyone watches cable TV. I certainly don't watch cable TV because free TV is addictive enough as it is.

Jon and Kate are a regular couple except when they tried to have a third baby they got six instead of one, which meant that in total they had eight babies. When the couple learned that they have so many babies, the father cried because he didn't know how he was going to cope financially.

To make matters much worse, the father Jon who was an IT Analyst suddenly lost his job. Kate had quit her job to be a full-time mother, and so both mother and father were unemployed with eight children.

This story makes me wonder whether it is really wise to have so many children and then just hope that everything will be okay in the future. Obviously life being as unpredictable as it is will inevitably create complications. Kate says that she copes by taking one day at a time.

When the little kids came out what I noticed was just how cute all the kids are. When I look at them a warm feeling swells within me. Many people say that children are wonderful, but I wonder why do people feel this way? Is the desire that people have for children analogous to the desire people have for consumption goods like sports cars and paintings? Are children necessities or are they luxury goods?

What is the Easiest Job?

Even though I plan to be a millionaire, I must admit to everyone that I am quite lazy. I think many people unfairly criticize laziness and turn it into a moral issue. Christian theology has labeled sloth a sin, so that may be the basis of this stigma of laziness. In fact, I believe that a person who works hard, that is, he sacrifices himself and undergoes excessive and needless pain and suffering, is really just crazy. Why suffer from more pain than is necessary? Some people say, "No pain, no gain." Many people say thing, but why is this true? Why must something be painful for it to be profitable? Can't there be painless profit?

Since I am lazy and since I want to avoid pain, I would like to know what sort of career is best for lazy people. I would imagine that a job as a security guard might be luxurious. You get paid to stand around. Things might get stressful when you find yourself in an altercation with a trespasser. What about a job as a teacher? I'm sure easiness of a job is subjective. For me personally, if I were a teacher I would rather teach younger well behaved children rather than older, louder, and rebellious teenagers.

In 2009, Start Savings $2,300 Per Fortnight

What do I have to do to be a millionaire by 35?

Right now I am 24. My net worth is currently $31,560. At the moment I am reasonably certain that I am capable of investing $1,000 per month. There are about 8 months left in 2008 so by the end of this year I should have a net worth of $39,560 (assuming the investment doesn't produce any returns).

By 2009 I will be 25, which means I will have 10 years to become a millionaire. How much will I have to invest per fortnight to become a millionaire? To figure this out I went to St. George Bank's savings calculator and found out that assuming my investments give me 8 per cent per year I should aim to invest $2,300 per fortnight.

This is why I need to have two jobs next year! Currently I am able to save $500 per fortnight fairly easily but by next year I must ramp up my savings. I will need to quadruple it. It will be a lot easier if I didn't have to go to university, which is what I have to do now. University really is holding me back from working longer hours.

I get paid $18.30 per hour. I am told that people who work at McDonald's get paid more than I do. They get paid about $20 per hour. Anyway, let's assume that I am only capable of getting jobs that pay me $18.30 per hour. If I want to save $2,300 per fortnight I will need to work 126 hours per fortnight (2300/18.30), which is 63 hours per week (rounded off). This doesn't seem too difficult. I have heard of investment bankers who work 100 hours a week, yet I can work only 63 hours a week in low-paying jobs, and if I do this for 10 years in a row then I will be a millionaire by the end of those ten years. If I had started this earlier, say, in my teens, I would have been a millionaire now, but of course then I'd have to abandon high school and university. It's only when you've made calculations like these do you realize just how massive an opportunity cost university education really is.

Anyway, the whole point of this post is to show that being a millionaire is not hard. It just involves finding a job (any job) and then doing as many hour per week as you can. Then it involves being thrifty and investing as much as possible.

27 April 2008

Investing in Frontier Markets

In his famous book A Random Walk Down Wall Street, Malkiel claims that the market is so efficient that it is impossible for anyone to know which stocks will go up (tell that to Warren Buffet). Malkiel claims that a monkey throwing darts at a list of stocks on a broadsheet will outperform the best fund managers from Wall Street. Recently, Malkiel has been going around saying that a better way to put it is that an investor should put a "blanket" (his words) over the list of stocks and purchase everything.

Vanguard founder John Bogle advocates the same thing, and today about 20 per cent of investors engage in index investing. The problem is that Bogle used to claim that individuals should only invest in an index fund that tracks the S&P500. Foreign diversification was not necessary because U.S. companies do business in foreign countries anyway. Suppose they did. Couldn't we argue that ExxonMobil does business with hundreds of other firms in America, and so therefore we don't need to buy stocks in other companies in America? Anyway, Bogle said all this when the American market was booming. Recently, however, with American markets stagnant in the wake of the property collapse, Bogle now claims that indeed you should diversify internationally. He claims, however, that you should only put 20 per cent of your portfolio in non-U.S. index funds because of costs of investing in foreign countries. Some people also claim that investing too much outside the country of residence can increase currency risk too much.

The idea of having a huge bias towards the home country seems to goes against the principle of indexing in the first place. If we throw a blanket over American stocks and buy and hold them all, then why shouldn't we throw a blanket over global stocks and buy everything in the world?

Some people try to do this. I know of someone who holds only two ETFs on the ASX: IOO, which tracks the top 100 multinationals; and IEM, which tracks the MSCI Emerging Markets Index. Through these two ETFs he gets the developing countries in IOO and the emerging countries with IEM. However, this doesn't cover everything. He is missing out on frontier markets. Standards and Poors has an index that tracks frontier markets called the S&P Frontier Markets Index. They describe frontier markets as follows: "The S&P/IFC Global Frontier Markets cover the lesser developed markets even by emerging market standards." There are 24 countries in this index.

Then there are those countries that have no stock market at all, e.g. Cambodia. There are rumors that a stock market will be built in Cambodia soon by some Koreans, but I am not too certain. If that is the case, Cambodia will likely become a frontier market. At the moment though the only way I think people can invest there is through microloan systems like MyC4 (for profit), Ebay's Microplace (for small profit and for Americans only), and Kiva (for charity). At these sites you have to shop around and read stories about those you want to lend money to. It would be nice and convenient if there were a microcredit ETF available that provided decent growth and dividends. Microloans at Kiva are not actually stock exchanges in that the investments are unlisted, not listed.

As a rough rule, the less developed the country is, the higher the potential returns are but the greater risk there is. Today's emerging like Russia, Brazil, China, and India have growth considerably and have produced immense (e.g. 40 per cent per year) wealth for those invested there. However, with more and more money pouring into these countries, the potential for returns may diminish. The stock market of China may be overvalued, depending on who you ask. It is worth then looking at the next emerging markets, which is today's frontier markets.

Should you invest in frontier markets? The way I see it, whether you want to invest in frontier markets depends on your risk tolerance. It is exactly the same as leverage (borrowing to invest). If you borrow to invest, you might make more if the markets go up. However, if the markets go down, you lose a lot more. The degree of gearing or levering an individual chooses will depend on his or her tolerance for risk. Similar thing applies for investing in less developed countries. If you have low tolerance for risk, stick with America and EAFE countries (Europe, Australia, and Far East).

26 April 2008

I Dream of Being a Full-Time Day Trader

I've written about my thoughts about being a day trader in a previous post. On the train I listened to a Smart Investing podcast by Robin Bowerman that claims that studies in behavioral finance show that many people believe they are seeing patterns in randomness. That is, if you flip a coin on an on, people observing it tend to think they can predict things or see patterns when in fact the coin flip really is just random. This comes from natural human instincts to see patterns in chaos in order to better understand the world.

This can be the case with day trading. Investors looking at the erratic intraday movements of price may perceive some trend, but maybe they are just fooling themselves.

Nevertheless, I still dream of one day getting away from it all. That is, no more lectures, no more assignments, no more shifts, no more talking to the boss--I can just pack up and make a living trading on my computer in the comfort of my own bedroom. Trading online is like playing computer games, and I love computer games.

The problem is that I just don't know how much money I could make. I am a highly risk-averse individual. This doesn't mean I haven't made mistakes. In fact, I've made many mistakes that I now regret, but from regret comes caution.

Being a day trader I think is also quite impressive. Imagine if you're at a dinner party. When people meet they usually ask, "So what do you do for a living?" Suppose I said, "I have enough money to retire. I just sit around all day watching TV." That's hardly going to impress anyone. However, if you say, "I trade shares and foreign exchange for a living. Yesterday I made $1000 shorting the Aussie dollar." A story like that really impresses people and makes them wonder too whether they might have the ability to day trade.

Of course, if markets are fully efficient and if day trading is a scam then I can always just closet index by putting 95 per cent of my portfolio in ETFs that follow the broad market and then with 5 per cent of my portfolio I could play around and invent stories based upon what I do with this 5 per cent. Since it's only 5 per cent, I don't lose much if I do lose anything at all.

Now that I think about it, this plan is the height of vanity and is really quite silly. If I would go to this length to look successful then why not just lie altogether?

Food Prices Rise

See World's New Crisis: Soaring Food Prices.

With food riots around the world today, many are making Malthusian predications about the world. One of Malthus's predictions is that more wealth would result in higher fertility rates because of lack of moral constraint, and so this would lead to mass starvation since people grow at a faster rate than food. Malthus turned out to be completely wrong. What we see today is that fertility is highest in poor countries while rich people tend to have fewer babies.

Producing children in chaotic, poor countries is a form of insurance since children can be used for labor on farms and also children may help the parents when they are older, making them akin to a pension.

This is why in Australia fertility rate is so low. Producing children has no actuarial benefit. Rather, children are only produced for pleasure. The problem is that children compete with other luxury goods for pleasure, such as Ferraris and holidays, which further reduce levels of fertility.

Some Australians I have spoken to say that the problem of food scarcity may make Africans desperate to escape to developed countries like Australia. They advocate then a wall around the country.

If Africans are breeding too much and Australians are breeding too little and if there is a scarcity of both skilled and unskilled labor in Australia then economic theory suggests the best idea is to allow free flow of labor between Australia and Africa. Unskilled Africans can work picking fruits on Australian farms. This will increase food production as well.

Putting a wall up separating free flow of labor is a form of Communism since you are not letting the free market allocate labor inputs to its most productive use but rather you are using central planning.

Amscot Online is Best Value Broker

I have been reading Money Magazine's piece called Cheapest Online Broker. At the moment I have an account with Commsec, which charges $19.95 per trade of up to $10,000. But I can do better.

The cheapest online broker is Netwealth, charging $17.99 per trade. However, you can't trade more than $5,000, so in terms of how much transaction costs you pay per unit dollar invested, the best value broker is from Amscot, which charges $19.80 for trades of up to $22,500. For the best efficiency you must invest $22,499 at a time. Of course, saving up that amount may incur cost in the form of opportunity cost of having your money in cash rather than equity. This opportunity cost depends on your earnings rate. If you receive $22,500 every second you work, then this would be fine since one second of that $22,500 in cash instead of equity is not going to cost as much as if you had that same amount out for a few years, which is what would happen if you had a low-paying job. All this assumes that the stocks you buy will go up in value by more than what cash investments would produce.

If you are a buy-and-hold investor, which is what I am, then many people who criticize ETFs criticize the brokerage fees, which they say eat away at investors' profits. However, if you are a buy-and-hold investor and hold the ETF for, say, 40 years or forever (say you bequeath the ETF to charity or children after death) then the brokerage costs amortized over this time period is negligible.

Update: There might be some hidden charges with Amscot: "Clients will be charged $11 inc GST per month for use of amscotOnline Standard. This includes both software costs and ASX royalties. This charge will be rebated in full should you execute a minimum of 3 trades per month."

Three trades per month at $22,500 each trade (for maximum value) means I have to make $67,500 worth of trades per month!

Maybe I'll be sticking with Commsec.

Is Sunsuper The Cheapest Super Fund?

Right now I am with Hesta. They claim to have low fees but at the moment I pay administration fees of $1.25 per week and management fees of about 0.4 per cent. However, I could probably do better. If you invest in the Australian index fund provided by State Street Global Advisers at Sunsuper you pay management fees of only 0.15 per cent. The administration fee for Sunsuper is slightly higher at $1.30 per week, but that is negligible compared to the difference in management fees. If you have large amounts of money invested, the difference in costs can be massive.

I think putting money into your super fund is one of the best investments. My plan is to first have enough money outside of super to sustain my life forever in the event of job loss and family abandonment. I'll need approximately $150,000 for this, and I plan to save it up in a mutual fund outside of super. Once I have this emergency fund I will focus on building wealth within super because it is more effective. I can salary sacrifice to my super fund to the point where my taxable income is below $6,000 per year, and then I will pay no tax. Furthermore, because I will be classified as a low-income individual then I am eligible for the Australian Government's super co-contribution, which means that if I inject $1000 into my super fund, the Government will pump in another $1,500. This means I maximize my net worth given my income.

Because virtually all the fruits of my labor is locked away in my super fund, this plan is also great because it forces frugality by making me depending on the dividends of my emergency fund.

25 April 2008

Looking For No-Fee Bank Accounts in Australia

I am currently with the Commonwealth Bank. My parents signed me up for an account when I was little and I haven't changed since.

The Commonwealth Bank gives me a streamline account, which is where my wage goes. It also provides a savings account called Netbank Savers that earns 7 per cent per year.

The Commonwealth Bank also gives me a key card that I can use to buy things. It is a debit card that allows eftpos. I also use ATMs quite a lot to withdraw cash because every time I use a credit or debit card I have a paranoid fear that something will go wrong because of the unpredictability of technology. Handing over cash is very certain. Of course, the ATM could always stuff up when I'm withdrawing currency, but if this happens it's not as embarrassing since the problem is between you and the machine. Once I went to a Chinese restaurant and tried to pay the bill using my key card. The key card didn't work. I don't know why. It was really embarrassing because I had to ask my grandma for money. She had some cash in her wallet. All the people were looking at me while I did this.

I don't has any worries with the Commonwealth Bank. They provide excellent service, in my opinion. It is no wonder then that CBA is the second biggest Australian company listed on the ASX, just below BHP Billiton. What I do have a problem with is the Commonwealth Bank's fees. They charge $5 per month, which will start when I am no longer a student. They also charge fees for use of their ATMs.

I am therefore thinking about moving elsewhere, maybe getting the HSBC Online Savers Account or maybe getting something from Bankwest or Members Equity Bank.

Many of these discount services that have no fees usually have some catch like no ATM use. I could probably live with ATMs. I can just use my credit card all the time and then pay off my credit card before it starts charging interest. I will need good self-control.

I'll also have to talk to my employer and ask her to direct my wages to my new account.

22 April 2008

Why Work?

After submitting my resume for a job at KPMG, I was invited for an interview. However, a few days after the interview, KPMG rejected me, so I am feeling pretty down, especially since I thought I did well during that interview.

I hope I do get a full-time job this year because it is essential for my plan to become a millionaire. If I don't get one I will have to take drastic measures such as working at McDonald's. I am also thinking about working as one of those people who walk around stuffing junk mail into people's letterboxes. My dad laughed when I told him this. He said I didn't go to university for six years to be a burger flipper.

Sometimes I wish I were a burger flipper. I've realized based on calculations that it's not really the pay that matters but the number of hours you do per week. It's the quantity of the labor that matters. Furthermore, the fact that I've been in university for so long means I have wasted so much time. I know of a kid who dropped out of my high school, became a plumber, and now owns two houses and a brand new car. His net worth is probably $200,000 or so. He probably doesn't have the prestige but at least he has the security. I think that is the main problem. I honestly believe my parents pushed me into university so they can tell their friends about me. I get depressed when I think about this.

I work part-time at the moment, which is how I am able to get at least a positive net worth so far. This part-time work however is mere administration, clerical, or data entry work. It pays little and it's a night job. Most people might think I hate this job but I don't think it's that bad. It's pretty easy and the people with whom I work are very friendly. Even though I try to be modest and I always put myself down, everyone at my work knows I have two Bachelors degrees from an elite university and because of that they expect me to get a high-paying job after graduation, so I must admit there is quite a lot of peer pressure for me to perform. Of course, the fact that I work there instead of doing an internship at an investment bank probably suggests to everyone that there is something wrong with me. I know a friend who took a year off from university to work at UBS. After graduation he got a job at Macquarie Bank as an investment banker. His starting salary is $84,000. However, I also know another person who studied civil engineering. During university he worked at Safeway. He managed to get a job after graduation.

At my work, many people ask me about university. They ask, "How's university?" Since I hate university so much now, I try not to talk too much about it. Some students talk about university all the time. I get the feeling that university nowadays just doesn't matter because just about everyone goes to university. If you meet someone below 20, chances are he or she will have a degree.

With all the stress of job hunting getting to me, I decided seek the advice of the Divine Oracle, also known as Google. I asked, "Why Work?" and She replied with the site WhyWork.Org. It's a nice site, and I had a good read. The site encourages people to stop working. I must admit that if I had the choice between working or not working I'd rather not work. I also hate studying. I used to love going to university but now I really hate it. There is a way out. I can work intensely for a year or two and then put all my money into stocks or a savings account and then live off the interest. Some people say this is impossible because I would have to save too much. However, they don't realize how cheap living can be. I am confident I can get rent for a unit in a country town for less than $100 a week. I am confident I can eat for $3 a day. That's $6,295 per year in living expenses. Assume your savings account gives you 5 per cent. Then I need $125,900. I already have $21,000, so I just need to find $104,900. Of course, then there is the problem of inflation, not just the threat of food prices going up but the threat of rent going up as well, so I think I will need a little more than $125,900 to cover the inflation, maybe $150,000. With a normal wage of $20 an hour and working 80 hours a week I'd have to work for about 2 years. It's doable. I'll be able to retire at 26!

Hopefully I'll find a full-time job and hopefully I'll love it because I don't want to have to think about early, early retirement.

If I do retire by 26, I am sure many people would look down upon me. Of course, I will be living in a unit by myself in a country town, so I will be isolated from everyone and therefore nobody will even be able to see me. If they can't see me how can they look down upon me? Some people might call me lazy, but I don't really see what is wrong or evil about laziness. We all try to economize. We don't walk but drive to work. We buy food from the supermarket instead of growing our own food (most of us, at least). What's wrong with laziness? Why do more work than necessary?

Why Should We Buy Sin Stocks?

There are many socially responsible investments around. For example, Christian Super avoids investment in companies that it deems are immoral, probably companies that distribute porn, support abortion, gambling, and so on.

I believe that even if you are an ethical person who is against gambling or porn, you should still buy stock in companies that supply these things. The reason why is because if you don't buy the stock, someone else will, and the other person who holds the stock may use the profits for sinful things.

For example, Altria Group (suppliers of cigarettes) is considered one of the most immoral companies of all. However, current Fed Chairman Ben Bernanke holds nothing but stocks in Altria Group. I happen to know a friend who is an investment banker who claims to have met Bernanke, and Ben is apparently quite an arrogant jerk. Bernanke may be attracted to Altria stocks because all the ethical investors are not. If ethical investors stay away from the stock, it becomes underpriced, which means evil people like Bernanke can buy the stock for cheap and make huge profits. If you truly were ethical what I believe you should do is buy as much Altria stock as possible and whenever the company pays you dividends, use that money to donate to anti-smoking groups like the American Legacy Foundation.

This approach provides a natural hedge. As Altria becomes more successful in getting people to smoke, its profits increase, shareholders make more money, and more money goes towards anti-smoking groups that try to stop people from smoking.

Update: I heard Bernanke sold his Altria stocks and no longer holds any.

21 April 2008

Can I Be a Successful Day Trader?

At the moment I just put in as much money as possible into my mutual fund and wait for the world stock markets to go up bit-by-bit.

But I wonder whether I could be a day trader?

A day trader is someone who buys and sells stocks all day long. He or she studies the news, does research on companies, and so on.

People who subscribe to the efficiency market hypothesis would claim that this is a waste of time because you cannot beat the market.

Nevertheless, I still wonder. Today the ASX200 shot up about 150 points, an increase of about 2.3 per cent. The thing is that today is Monday and during the weekends I had a strong hunch that this would happen. How? Everywhere else in the world, that is, in Europe, America, and Asia, stock markets were going up. Everyone was positive. In Australia everyone seemed rather positive as well and yet the ASX200 fell on Friday. So then I thought that it had to go up, and my hunch was right because it did go up.

Of course, I have to be careful about confirmation bias. Before I use real money I can test out my skills on paper and see what would happen hypothetically.

Vanguard founder John Bogle believes that investors should get trading out of their system by allocating 5 per cent of their portfolio and no more to these risky pursuits. The other 95 per cent must not be touched.

Many believe short-term trading is akin to gambling. I'll just have to be careful. Even though I am warned about the dangers of short-term trading, every day I get the feeling that I can beat the market. I watch the major indices all the time, not only the ASX200 but also the S&P500 as well as the FTSE100 and Nikkei.

19 April 2008

ETFs on the ASX: Good or Bad?

ETFs are exchange traded funds. You can buy and sell them on the Australian Stock Exchange and they act like a mutual fund unit. In America the ETF market is highly developed, offering customers countless products. In Australia, however, the only ETFs I can think of are the country-specific ones offered by iShares, the Australian index ETFs by State Street Global Advisers, and GOLD.

I don't have any ETFs at the moment. The problem is that I only work part-time and if I dollar cost average (e.g. invest $500 per fortnight) then I will pay brokerage costs (costs of buying or selling shares). On online brokerage Commsec, you have to pay $20 for transactions less than $10,000. Most traditional mutual funds (not all) do not charge you anything to put money in. So why bother with ETFs at all? ETFs usually have very low management fees, lower than their mutual fund equivalents. For example, Vanguard Australian Shares Index Fund has an MER of 0.70 per cent while the SPDR ETF that tracks the ASX200 (ASX:STW) has an MER of 0.286 per cent. So basically using mathematics I am able to calculate that for the ETF to be worth it I would have to invest about $5,000 in one go for it to beat the Vanguard index fund given brokerage costs of $20 per transaction. In order for you to get the most bang for your buck you should invest $10,000 each time. A 0.70 per cent fee on that amount means you pay $70.00 per year. A 0.286 per cent fee plus $20 brokerage on $10,000 means you pay $48.60, which means you save $21.40 per $10,000 you invest if you use the ETF.

Obviously at this moment I don't have $10,000 or even $5,000 lying around, and so ETFs are not not practical for me. In order to save up that amount, I would have to wait for a long time. ETFs will be something I'll think about when (or if) I start earning more.

I have no interest in GOLD, so I won't talk about that. I will talk about the iShares ETFs. As a simple rule I aim to invest half in Australia and half outside Australia. Australia only makes up 2 per cent of the world economy, but I invest 50 per cent here because of currency worries. If I invested almost all my money overseas then fluctuations in the Australian dollar will have too much impact on investment returns. Vanguard and Hesta seem to believe the same thing. This is why I have been looking at the iShares ETFs because they provide a window into investing outside Australia. I am particularly interested in IVV, which tracks the U.S. S&P500 Index. It has an MER of 0.09 per cent! I think this must be because the American financial system is highly developed and thus they are able to get economies of scale going. Two ETFs provided by iShares that I think are a waste are IOO and IEU. IEU is the biggest waste. You pay an MER of 0.60 per cent to invest in European companies. IVE claims to track the MSCI EAFE Index (Europe, Australasia, and Far East). However, if you look carefully at the country makeup of IVE you'll notice that about 90 per cent of it is in European countries. So essentially IVE is a European ETF, yet its MER is 0.34 per cent. IOO invests in the top 100 companies in the world. The problem is that it is hardly global. About half of them are European and half are American, and the MER is 0.40 per cent. Why not buy half IVV (S&P500) and half IVE (EAFE) and pay a weight MER of 0.215 per cent?

The most expensive ETF provided by iShares is IEM, which invests in emerging markets. Emerging markets make up 40 per cent of the world economy now, so having some exposure I think is a good idea. The monopoly of Europe, America, and Japan may be a thing of the past. iShares has separate ETFs for emerging countries (IZZ invest in China with MER 0.74%, IKO in South Korea with MER 0.68%, and ITW in Taiwan with MER 0.68%). However, I think it's better to invest in IEM and get not only China (14.8% of IEM), South Korea (12.8% of IEM), and Taiwan (9.1% of IEM) but also other emerging countries like Russia, Brazil, and Mexico.

The developed Asian countries all seem to have similar MERs: IHK for Hong Kong with MER 0.52%, IJP for Japan with MER 0.52%, and ISG for Singapore with MER 0.51%.

Update 19/4/2008
My calculations may have been slightly wrong when I said that you need to invest $5000 at once for the Australian share ETF to beat Vanguard's Australian share mutual fund in terms of cost. The difference is that for the ETF the $20 brokerage is paid once and that's it. For Vanguard, the extra management fee is taken out every year for the rest of your life, not just for the first year. To calculate this then is much more complicated. I think I'll need to know how to find the present value of a perpetuity. Unfortunately I've forgotten how to do that. Nevertheless, intuitively this means that investing in ETFs is even more cost-effective than I thought. You probably only need to invest $1,000 or less at a time for its costs to be equal to the cost of the traditional mutual fund.

Structure Your Own Fund on Hesta and Pay Low Fees

I am with Hesta Super Fund. I didn't choose this fund. It was simply what the employer gave to me.

Most people invest in the default option, which for Hesta is the Core Pool, a diversified fund that holds a reserve to smooth out bumps. The problem with this fund is that it holds only 55 per cent of its assets in shares, which is far too conservative for someone who is 24. The rest of the fund invests in property, infrastructure, private equity, commodities, fixed interest, and cash. Wanting something more aggressive, I chose the Shares Plus Fund, which invests 76 per cent of its assets in shares. This fits in with Bogle's rule that what percentage you should invest in stocks is 100 minus your age.

The problem is that the Shares Plus Fund has a management expense ratio of 0.70 per cent (and performance fees of 0.32 per cent). This is rather high.

Luckily, Hesta has a Your Choice option that allows investors to make their own portfolios. This means I can pick and choose more specific asset classes like Australian Shares and International Shares and imitate a diversified fund like Shares Plus or even Vanguard High Growth Fund for a lower cost. So that is exactly what I did.

I decided to construct in Hesta a fund that looks exactly like Vanguard's High Growth Fund. The only problem was that Vanguard invests 7 per cent of its High Growth Fund in emerging markets and small companies. Hesta doesn't have any of these as Your Choice options. So I made an assumption that the Absolute Return Strategies option, which invests in hedge funds, is similar in risk and return characteristics.

The weighted management fee of this imitation fund is 0.55 per cent with performance fee of 0.29 per cent. This is considerably lower now!

The following asset allocations are used for the imitation fund: Fixed Interest (10%), Property (10%), International Shares (29%), Australian Shares (44%), and ARS (7%). I have copied the asset allocations used by Vanguard.

Could I do the same thing with my Vanguard fund? Right now I invest all my money into Vanguard's diversified High Growth Index Fund. However, what if I put 44 per cent into Vanguard's Australian Shares Fund, 29 per cent into Vanguard's International Shares Fund, and so on? The problem is that Vanguard doesn't offer retail funds that invest in emerging markets or small companies. Furthermore, Vanguard offers quantity discounts. I am charged 0.90 per cent on my High Growth Fund currently but for investments beyond $100,000 I am charged only 0.35 per cent. A minimum of $5,000 is also needed to start a new fund with Vanguard. All this, combined with the fact that I only work part-time, means that it is not worth it making my own fund in Vanguard. They have probably already thought about this.

Some people tell me that yet a cheaper way to invest is not through traditional mutual funds but through ETFs (exchange traded funds). This is something I'll write about more later.

17 April 2008

Net Worth Report for March 2008

Cash $654
Stocks $21,844
Super $3,130
Car $5825
Kiva.org $107


Net Worth

Many people are taking advantage of high-interest rate savings accounts (e.g. BankWest offers 9 per cent). Nevertheless, even during these volatile times I still put my money in my mutual fund for investment mainly in stocks. I worry that if the markets recover and all my money is in a savings account then I will miss out.

14 April 2008

Top 10% Trader So Far

I am playing a simulated trading game at Trading Places. You buy and sell imaginary shares on the Australian Stock Exchange. Traders who make the most money will get job interviews at JP Morgan and presumably will get a job there.

I gave it a try and to my surprise I am ranked in the top 10 per cent. My rank is 365 out of a total of 4445 traders. Among students in my university I am in the top 5 per cent! We still have 45 days of trading left.

My strategy was pretty simple. Since brokerage cost is a massive $50 per trade, I decided I wanted to buy shares in companies I could really trust. BHP Billiton (BHP) and Commonwealth Bank of Australia (CBA) are the two largest companies in Australia, so I put much of my money into these companies. However, in many other traders were likely to invest in these companies so I needed something different to differentiate myself from others. I chose Wesfarmers (WES) because it is quite a big and successful company. I have also read about this company's excellence in business ethics, and also I purchased Wesfarmers right after its stock price dipped, so I hoped I had picked the trough. My risky bet was on Sonic Healthcare (SHL). This is one of Australia's best medical diagnostics companies. I figure that in these tough times investors might flock to the health sector in the hope of finding a safe haven. After all, people will always get sick, and Australia's population is aging.

BHP and CBA are going strong. Wesfarmers is looking okay. Sonic is not. There are still 45 days left, so anything could happen.

By the way, I am not an expert day trader, and I don't recommend this sort of speculative day trading for most people, especially if you are using real money and especially if you are using a lot of your own money.

11 April 2008

What's With All the Money-Hungry Students?

This may be an unfounded generalization, but I find that science students tend to be more materialistic than average. I get this impression from witnessing the behavior of science students because I myself am a science student. I am doing a double degree, which means I study two Bachelors degrees at once, both a commerce degree and a science degree.

In a recent mathematics class I overheard one guy saying, “I used to study genetics but I quit it and did math because there's no money in genetics. At least, that's what I think. I'm just in it for the money.”

Another female friend of mine who is doing a double degree is arts and science is the most materialistic girl I've ever seen. She claims that the only point of university is to earn money and that her dream was to marry a rich man and get a giant engagement diamond. She told me she would then spend all day shopping and playing with the kids. Sometimes I wonder what kind of man would be na├»ve enough to let his spouse stay at home and leech of his money, but when I think about it many men do this, and many men will probably be unaware of the spouse's underlying motives. Her ostensible motive will be romantic love but her real motive will just be resource acquisition. I live with the hope that not all women are like this, but the whole issue of heterosexual relationships and marriage is something I've postponed till I'm older. I therefore have no girlfriend at the moment. Anyway, this female friend at university is materialistic, yet I sometimes wonder why a materialistic student would study an arts degree. I also wonder why she would study science and especially I wonder why she would major in pathology. Majoring in a life science would likely set her up as a medical researcher. According to an interview with Dr Sabine Piller at the Australian Academy of Sciences, "The very most important thing for a career in science is to just have a love for it. You have to have a passion for the job, because there is not much funding for science and not much money in it. So you really have to love what you’re doing – you have to be curious about what you’re doing. That, I think, is what gets you there."

So then if scientific research doesn't pay much, as Dr Piller says, why would my female friend do it? Perhaps she mistakenly thought that a major in pathology would make her a licensed pathologist. Pathologists who make diagnoses on blood samples etcetera are licensed medical practitioners and they are certainly paid a lot. However, to become a licensed pathologist you need a medical degree, not a science degree. This may be the mistake my female friend made. I know of another friend who did a course at Victoria University called Legal Studies and expected to become a lawyer. Legal studies is not the same as law, the latter gives you a license to practice law while the former doesn't, yet this friend honestly thought she was going to be a lawyer.

Shop From Home for Food

I have found a site called Homeshop that allows you to have goods from Safeway delivered to your door. You have to pay extra for the delivery, but it may be worth it. When I retire I plan to spend most of my time indoors watching movies or reading books. I have a large list of movies and books that I would like to read in my life but because I have to work and study while I'm young I don't get an opportunity to watch these movies or read these books. So I postpone it to my retirement. One of the things I budgeted for during retirement was a car because I need to go to the shops to buy food, which I need if I don't want to starve to death. However, with Homeshop I will be able to sell my car, thereby saving me registration costs, insurance costs, and car depreciation costs. The total cost of the car I suspect will be much more than the Homeshop delivery costs. The exercise will be very cost-efficient if I order plenty of goods at once. I don't know whether Safeway will allow me to order tonnes of food at once. Obviously stockpiling on foods that quickly perish like most milk will be a bad idea. I will then have to bias my food towards long-lasting food such as tinned food. I will also have to balance the price of the food with how healthy it will be because health is important. Because I don't plan on having an extravagant retirement, there really is no need for me to save much. I suspect $100,000 to $200,000 will be enough to fund this retirement. Costs can change because of price inflation, so I'll keep an eye on that.

Ever since I've started measuring it, my net worth has been steadily increasing. I work part-time at the moment, so I don't earn much. Since this year is my last year of university I am looking for a full-time job. If I get this full-time job my savings rate should be much higher, which means my net worth will skyrocket. The difficult question is when I should retire. How much money is enough to retire? Some people suggest I should stop at $1,000,000, which would give me a very comfortable and luxurious lifestyle. However, $300,000 will give me a modest comfortable lifestyle, and I will be able to retire much earlier. I haven't made up my mind about when I should retire. The most important factor that will determine the time when I retire will be how much I enjoy working. Right now I don't mind doing my part-time job. It's not too stressful, and the people at my work are very kind, so working there is almost like hanging out with close friends. However, some professions are rumored to be highly stressful, such as investment banking. Once I have enough to retire, instead of retiring what I could do instead is simply change jobs and move into a job I might enjoy very much (perhaps teaching). When I was young, teachers tell me to do what I love, but that is not helpful because what I love to do is read. Unless I am a book reviewer, chances are I won't be able to produce an income from what I love so that I can feed myself. Other hobbies are even less profitable. If a teacher tells a student to do what he loves and if the student loves to do nothing (e.g. sleep all day and watch TV), then would the teacher still stick with the do-what-you-love recommendation? I believe it is important for an individual to do something highly profitable that is not too difficult or stressful and once his net worth is high enough to sustain a comfortable life he should then start doing what he loves.

07 April 2008

Hedonism for Hunger

In feminist B--ch Magazine there is an article called Tree So Horny about a group called F--- For Forests, which explicitly uses pornography and sex to raise money to save forests.

I wonder why the same concept cannot be applied not to fighting against deforestation but to beat world hunger. I have already thought of a name for the group, Hedonism for Hunger where participants engage in hedonistic acts for the sake of raising money to fight world hunger. The money raised can go to the World Food Programme just the profits from Free Rice does.

Many people feel guilty engaging in acts of hedonism. However, if the hedonism is for hunger then that gives people a good excuse.

One of the main problems of the sex industry I believe is the fact that it doesn't cater to shy virgins. I suspect a large number of young virgin males and females would like to go to a brothel but are bothered by the high costs, the embarrassment, and the fear of being ridiculed for their inexperience.

High costs can be fixed through economies of scale. Thousands of clients can be lined up on a conveyor belt and a handful of sex providers can give the service to each quickly.

The problem of embarrassment can be fixed with guarantees of anonymity. A brothel may encourage all its customers to wear rabbit masks upon entry. In public someone wearing a rabbit mask will look like he is going to a fancy dress party, so the individual wearing the mask will not be too embarrassed.

Walrus Peekaboo

Here's a really funny picture from Flickr.

Title: Happy birthday, Walrus! Aww, you shouldn't have.

Source: http://flickr.com/photos/sepultura/666133293/

01 April 2008

Ragged Dick


Ragged Dick Audio at Librivox
Full Online Text of Ragged Dick
Ragged Dick at Amazon.com

I've just finished listening to Ragged Dick by Horatio Alger Jr. The book was written in the 19th century. It is about a young boy named Dick Hunter who shines people's shoes for a living. Through hard work, thrift, honesty, charity, and some luck, he grows up to become a respectable person. This story is the first and most popular of Alger's many rags-to-riches books. Many believe Horatio Alger's books had a profound impact on the creation of the so-called American Dream.

The story is very enjoyable to read. The characters are very lovable. The plot surprisingly contains themes that I could certainly relate to and I'm sure many people will see in certain fictitious characters some of the behaviors of their friends in the real world. So ubiquitous is the American Dream in our lives today that we can recognize its symptoms so easily in Ragged Dick.

On the downside, the ending of this story is just laughable. I won't give anything away but let's just say there is some deus ex machina.

There have also been recent (2006) revelations that Horatio Alger Jr was a homosexual pedophile (or pederast). This doesn't surprise me because some of Ragged Dick contained what I perceived as homoerotic parts. For example, once Dick Hunter shared a bed with a younger boy. Even the title "Ragged Dick" has homosexual connotations. Horatio Alger Jr was inspired to write Ragged Dick after living in New York and living with and observing young boys who worked in the streets. There is speculation that he had sex with these boys, but that has not been confirmed.