Liquid Independence

Liquid is the main editor of the Freedom 35 Blog.

May 282015
 

Economics is the only profession where you can gain great eminence without ever being right. Remember earlier this year when just about everyone anticipated higher interest rates, but then the Bank of Canada slashed rates instead? If mainstream economic predictions were right interest rates would be a lot higher by now, our wages would have grown to keep up with the cost of living, and Vancouver real estate would become more affordable. But that is clearly not the world we live in today. Nobody has a crystal ball to see into the future. If they did, the only people winning the lottery would be fortune tellers. It’s funny how the same people who laugh at fortune tellers take economists seriously. 😛 Okay, enough bashing on economists. They are actually good and respectable professionals. And we need them to make weather forecasters look good. 😛 Sorry.

Economics is complicated, but it doesn’t have to be hard. One way to understand the current situation we’re in is to read more history, and fewer forecasts. If we’re going to buy a specific stock we can look at its historical chart and determine what events caused it to move higher or lower. Reading stories or biographies of famous investors like George Soros, Peter Lynch, or Benjamin Graham can give a sense of how the smart minds think about situations and prepare us for when history repeats itself.

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Financial markets have a very safe way of predicting the future. They cause it. 😀 But don’t count on anyone to tell us when and how the next recession is going to happen. My Apple shares are up 50% over the last year, some bulls believe it still has room to rise. But bearish pundits think the stock market could correct at any moment. Some think the Canadian real estate market will remain elevated, while others below the bubble will burst so it’s better to rent than to buy right now. At the end of the day all of those are just peoples’ opinions. They’re only right until they’re wrong.

There will always be conflicting forecasts. Markets can rise and fall, but not do both at the same time. There are two sides to the same coin. When advocates of one side are right the other side loses. But there’s actually a third side to the coin that not everyone knows about; the edge! That’s where we want to be. We want to straddle the edge so we can take advantage of both sides, be it bullish or bearish, and spread out our financial risk. We can’t predict the future but we can sure prepare for it. :)

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Random Useless Fact

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May 252015
 

Many people are unaware that they are victims of the Dunning-Kruger effect, which is a cognitive bias wherein unskilled individuals suffer from illusory superiority, mistakenly assessing their ability to be much higher than is accurate. Conversely, highly skilled individuals tend to underestimate their relative competence, falsely assuming that tasks which are easy for them are also easy for others. 😉 A study by David Dunning and Justin Kruger of Cornell University concludes: “The miscalibration of the incompetent stems from an error about the self, whereas the miscalibration of the highly competent stems from an error about others.”

Often when we’re bad at something we don’t even have the knowledge to know how bad we are. We witness this illusory superiority every day. 80% of men and women drivers surveyed in a study said they would rate themselves as above average drivers, lol. 😆 Boats become grounded when their captains overestimate their crew’s abilities. Confidence is good, but overconfidence can sink the ship.

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Our financial situations can sink as well if we suffer from the Dunning-Kruger effect. Many of us lack the basic financial knowledge to even realize that we’re making mistakes. It’s this lack of understanding about things like the stock market, compound interest, and inflation that can lead us to erroneously believe we’re making the right decisions when in reality we’re only deluding ourselves and setting us up for potential failure.

Overconfidence is the most dangerous form of carelessness. And when it comes to our money we can’t afford to be careless. So learn something new everyday. An investment in knowledge pays the best interest, after all. Gain experience to combat ignorance. Become better at managing money. And in the meantime, heed the wise words of the ancient sage, Confucius: “Real knowledge is knowing the extent of what you don’t know.” :)

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Random Useless Fact:

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May 222015
 

Those who invest in cocoa should put their money behind bars. Chocolate bars that is! 😀 Earlier this week in part 1 of my investing in chocolate series I wrote about the insatiable global appetite for chocolate and how to make money from that. :) Today I’ll go into details about how I plan to do it.

Last week I purchased about $4,000 USD of chocolate companies, Hershey Co and Mondelez International Inc. 😀 Both are major players in the chocolate space and own some very high quality products and valuable brands. I bought 20 shares of HSY and 50 shares of MDLZ, which is roughly $2,000 of each company.

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As we can see I bought these 2 stocks in my US dollar TFSA for efficiency. I’ll post a tutorial on how to open a registered $USD account in the future if anyone’s interested. For now let’s go over some analysis to understand why I believe these companies should be in my long term investment portfolio.

The Hershey Company

Famous investor Warren Buffett said one of the secret formulas to a successful business is to “buy commodities, and sell brands.” That is exactly what Hershey is doing. :) It purchases sugar, milk, cocoa, etc, and sells products that have major brand recognition. About half of the chocolate consumed in America is milk chocolate, and that is what Hershey is known for. :) If someone goes into a candy store to buy a Hershey chocolate bar and the store owner says “sorry, we don’t have Hershey, but we have this other generic brand that is 20% cheaper,” then the customer will probably leave and try to find another store to get his Hershey fix. 😆 That is the power of brand loyalty. It automatically puts a 20% value premium over other businesses offering the same food. Check out some of the awesome brands Hershey is responsible for.

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Continue reading »

May 192015
 

Life is like a box of chocolates – full of nuts! 😛 They’re also similar in that we never know what we’re going to get. Life gave me a tax refund this year so I decided to put the money to good use and invest it in chocolate. I believe the cocoa industry will continue to grow and I don’t want to miss out on all the potential gains. :)

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Produced from the tropical cacao tree people have been cultivating cocoa for at least 3,000 years. It’s one of the oldest, sustainable food we know of. Dating back to circa 1,100 BC the Aztecs were the first to use it by making cocoa into a beverage. Over time cocoa products have become an important part of the world’s social fabric. 😉

The Global Cocoa Market 🍫

Generations of confectionery marketing experts worked hard to integrate chocolate into as many parts of our lives as possible. We eat chocolate at weddings, birthdays, anniversaries, and many other events. It’s also customary to buy chocolate on Valentines, Christmas, Easter, Halloween, and other holidays. It can be a part of breakfast, lunch, dinner, snacks, appetizers, and desserts. Globally about $100 billion worth of chocolate is eaten every year. It has even made it into the hospitality industry, especially in fancy hotels and restaurants where guests are offered complimentary chocolate.

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Continue reading »

May 162015
 

46% of Canadians credit card holders carry some kind of balance each month, and we all know how high the interest rates can get on those. Over time the free market has come up with solutions to provide more affordable lending to borrowers in many parts of the world. In the U.S. and Europe for example, peer to peer lending has grown significantly in popularity as consumers look for alternative means to finance large purchases and pay down high interest debts.15-05-marketplace-lending-grouplend

Canada has been lagging behind in this segment of the financial market for some time but just last year a new Vancouver based company became the first to offer a legitimate marketplace lending solution. Grouplend plans to give Canadians a fast and convenient platform to borrow money with lower interest rates than credit cards or pay day loan services. I recently had a chance to sit down with its director of business development, Sean, to learn more about possible opportunities in this space for consumers and investors.

Grouplend leverages the power of technology to bring together creditworthy borrowers seeking loans with investors looking to earn a fair return on their money in an online environment that provides personalized services with competitive interest rates. The company claims to have over $50 million of loan applications already. The way it works is pretty straight forward. Large institutions and accredited investors pool money into a fund which is lend out to borrowers. These borrowers can take out a loan up to $30,000. The term of the loan is fixed for 3 years. The interest rates start from 6.3% and goes up depending on the borrower’s income and financial situation.

I can see this benefiting two main groups of people: consumers who want to consolidate their debt or want to borrow money for a short amount of time, and investors who are willing to risk lending their money to fellow Canadians to hopefully make a return.

The borrowing process is simple. Let’s say you have a line of credit at your bank at 9% and want to lower your rate. You may be able to replace this LOC with a Grouplend loan at a lower interest rate. On the main page of its website, use the questionnaire near the bottom to get your no-obligation personalized quote in a couple of minutes. If you like the conditions and interest rate, you may proceed with your loan application. To verify your identity and credit worthiness you will need to email them some documents like scans of your drivers license, 2 most recent pay stubs from work, etc. If the application is approved it takes as little as 24 hours for the loan money to be deposited into your bank account. You can also set up automatic repayments. After 6 months of on-time payments, you may even apply for a second loan. A process that used to take weeks and meetings with a financial representative at a bank has been condensed into a few mouse clicks and keystrokes. :) There is no origination fee, and you can pay back the loan in full at any time without penalty. This is a great opportunity for borrowers to save money on their high interest debts. Paying less interest means becoming debt free sooner, which frees up more money for retirement savings and investing. :)

For fixed income investors who are looking for alternative to bonds Grouplend allows individuals to pool their money into funds that consumers can borrow from. On its FAQ page the website encourages investors to reach out by email if they are interested. Due to regulatory and securities issuance in Canada only accredited investors can invest in Grouplend funds. Generally speaking an accredited investor has to either earn a high salary or have a net worth of $1 million. An employee benefit plan or a trust can also be qualified as accredit investors if total assets are in excess of $5 million.

Today’s world is all about going digital and crowd sourcing to become more efficient. :) I find the start ups for marketplace lending to be an interesting development. Since almost half of Canadians with credit cards hold a balance I expect there to be strong consumer demand for a lower cost, convenient, online loan platform moving forward.

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Random Useless Fact:

Use the phrase, “My understanding was…” instead of, “I assumed…” so that other people will merely think you misunderstood something as opposed to being viewed as having hastily jumped to a conclusion based on insufficient evidence.