Lessons From Long Term Capital Management

This is a guest post from Rick, the author of Invest In 2012, a website dedicated to providing investment and financial opinions.

Remember LTCM, the investment fund with Nobel geniuses that exploded in 1997? If you’re not familiar with the story, they were basically a highly leveraged hedge fund (leveraged 100 to 1) that imploded in spectacular fashion in 1997 when the Russian government defaulted on it’s bond payments). So here’s what you can learn from them.

1) Leverage is best not to be used, especially if you’re a big fund. If the markets are going against you, then you have to be able to hold onto you’re position until the market turns around and proves that you’re right. To do so, you can’t have leverage because the instant the market turns south, you’re going to be hit with massive margin calls. And if you’re a big fund, you’ll realize that market liquidity dries up when the market panics, because everyone is trying to sell, and there are not enough buyers to go around.

2) You can’t use logic in a crazy country. LTCM (Long Term Capital Management) tried to apply it’s trading model in Russia. Russia@ That crazy country where everything is run by ogliarchs and fat government cats! Trading models (the computer models that LTCM deployed) work based off of historical data, and work best only in free economies (such as the United States).

3) Hubris breeds ignorance, which will lead to one’s downfall. The LTCM guys were all Nobel prize winners, so they believed that their market predictions simply couldn’t be wrong! Long story short, they were wrong, and their fund exploded. Even men with genius IQ’s are wrong. And if you’re leveraged heavily, all it takes is to be wrong once, and then you’ll be wiped out instantly.

See Rick’s great post on What It’s Like To Rent Your Basement.

Investing on a Shoestring – Maps

This is another installment of a series on shoestring investment options. (See the first post here, on silver.) You can be involved on a large scale, but small, regular investments are more easily accomplished. Please note: I am a certified personal property appraiser — but not a professional investment counselor. These are my takes on the subject, albeit backed up with research and expert opinions. Invest at your own risk.

Today’s home dec trends often feature personalized, eclectic items that not only express favorite interests, but origins. You can take advantage of this via a route that’s often overlooked by others: antique maps.

It isn’t just because they look interesting. Maps, provided they’re chosen carefully with an eye to their long-term desirability, can be one of the most reliable antiques to increase in value. (A good overall view on this is here.) Case in point:

old map

Abraham Ortelius’ Maris Pacifici (or map of the Pacific Ocean), printed in 1589. (Photo courtesy of Wikipedia.) Ortelius was a Flemish cartographer whose maps often include wonderful images: sea monsters, icebergs, and in the case of this map, a galleon under full sail!

Ortelius maps have literally skyrocketed in a recent years, in great part because they’re interesting graphically, as well as geographically. Even lesser-known maps have increased considerably in value. Kevin Brown, of Geographicus Antique Maps, remembered bidding at a New York auction, about 2007, for a copy of Ortelius’ map of Iceland, not exactly a hot property, in more ways than one. Brown planned to bid $2500 — about what Iceland maps had been selling for post-2000. To his amazement, the map sold for $10,000! Since then, Ortelius originals (and they’re more common than you might think) have been selling for multiples of that once-‘shocking’ $10,000.

Trends do come and go in cartography. Texas maps, though they remain popular, have decreased some in value, according to Brown…but interest in maps of Chinese, and especially Russian cities, are on the rise. A careful study of auctions and maps for sale should help the savvy collector see what’s currently hot — and what isn’t.

Generally, the more rare the map, the better chances it will increase in value, according to Brown: “Many maps are very popular because of their historic or aesthetic value and maintain consistent high prices despite being commonly (obviously this is a relative term) available. Such maps do increase in value over time, but the number of such pieces on the market keeps the price increase slow and steady.”
If you’re considering investing in maps, remember:

*Study, study, study. Books and sale catalogs will help teach you the history of cartography, introduce you to rare examples, and help narrow down possibilities for investing. Spend time wandering auction sites to hone your eye for quality, as well as establish general values. (Ebay is also an excellent place to do this — but don’t let yourself get caught up bidding until you’ve had time to study the general market.)

*Damaged atlases or geography books, antique magazines or other periodicals can be cheap sources of maps. Although some parts will be unusable, pages can often be salvaged. Please note: I do NOT advocate breaking up perfectly good antique atlases, though there are plenty of people out there who will not hesitate, if they can make a buck doing it. Respect the publication — once you destroy it, it will never be the same.

*Buy better-quality maps that are more rare. “Unique or one of a kind maps…can command a premium and will almost inevitably increase in value dramatically over a relatively short period of time,” says Brown.

*Buy with an eye for the future. Reasonably-priced maps of famous areas, or with graphic motifs, may be modestly priced now, but will grow increasingly more rare in coming years.

*Look for maps with historical associations. George Washington’s plantation, Civil War battle sites, California Gold Rush sites, Washington, D.C. — all will appeal to certain types of collectors. But don’t neglect maps of everyday towns, either, if you can find them in excellent condition, and for the right price. I know a collector who paid quite happily for pages of an 1876 atlas that showed the small Michigan township where she grew up. She would not give these up for anything.

*Buy what you like. (Bonus if the map can be framed or displayed effectively!) If the map’s age, graphics or size appeal to you, odds are good that it will interest another collector, as well. And if it doesn’t — you have a piece you will enjoy living with.

*Consider using an experienced dealer as a go-between. You may have to pay a commission, but the dealer’s knowledge and experience may net a lower price, as well as keep you from purchasing a fake or more common piece.

Framed and displayed, old maps add an intriguing look to your living space. (No direct heat or light, as well as conservation-style framing, helps preserve their color and condition for the future.) Few investments can open your world, while showing it to you at the same time!

This post is by staff writer Cindy Brick. Cindy has several published books and many published articles on a variety of subjects. You can visit her business website at CindyBrick.com or visit her personal blog.

Warren Buffet Invests Like A Girl

In order to make sure I posts for this site every week I will review one investment book. The book for this week is Warren Buffett Invests Like a Girl: And Why You Should, Too (Motley Fool). Since Warren Buffet is the most successful investor in the world reading about his investment process seems like a worthwhile endeavor.

The premise of the book is pretty simple. The author state that women are more patient and less risk-averse on average than men and that Warren Buffet shares these qualities. Thus Warren Buffet invests like a girl. The author identifies eight qualities of the female investor’s temperament and shares what Buffet can teach us about them. The book is definitely about the behavioral side of investing rather than the technical side. It is good to know both sides. As a bonus the author includes interviews with successful female investors.

The book is an interesting angle on Buffet’s investing success. If you have already read several books about Buffet and his investing philosophy then this book won’t give you much new information but if you haven’t this book could serve as a nice introduction to Buffet and his investing philosophy.

Everything’s Relative – Value of Heirlooms

By his death in 2010, Carrie Fisher’s dad, Eddie, had little to show for his singing skills: a small cottage, a piano with sheet music, some clothes…and a pinky diamond ring he never took off. (Drugs, multiple women and careless spending for decades will do that to you.)

“This famously flashy multi-faceted diamond ring was the one and only item that any of us wanted,” Carrie documented in her book, Shockaholic. “And I thought it only fair(ish) that, since I was the main one of us to look after him in his declining years, this ring should go to me…” She even wore it to Eddie’s memorial service, to the envy of her half-sisters.

A few weeks later, she decided to have the ring appraised. Her “hoped-for legacy of not quite inestimable value” was…

Seven or eight karats of cubic zirconium.

Carrie was cool with it, since she loved her father: “Karats or no, the thing sparkles.” (Although she couldn’t bring herself to tell her siblings. I assume they know now.) The point is clear: we may covet things that aren’t worth nearly the energy we put into them. Like jewelry. (Ok, gold might be worth the effort. Diamonds, not so much.)

Family heirlooms fall into this uncertain category. Great Aunt Tilly’s sterling silver tea set may have gathered dust on your top shelf for decades, under the theory of “it’s too precious to touch.”

For one, it may not be that rare or valuable. (Many of these sets were only plated silver, and they were manufactured in large quantities.) For another, if it’s well made (and quality pieces are), it can handle gentle use. Antiques like these won’t be treasured by anyone else unless they have happy memories of it. I’ve evaluated far too many quilts that were found stuffed in a box or chest after a parent’s death, with no idea where they came from, or who made them. What a waste.

It makes sense to have a piece appraised. For one, it tells you right away if it is worth what you thought. (Or, in the case of the $50,000 Kashmir Moon Shawl, originally purchased at a garage sale, a whole lot more!) For another, the appraiser can often give you tips on storing and caring for your item.

But like Eddie’s ring, the piece’s real value may come from something else.

Some months back, I bought a flow blue cup and saucer set. The Gaudy Welsh cup is larger, with no handle — typical of 1840s era cups. It sits on a deep saucer lavishly decorated with strawberries and gold leaves. (Why the depth? Because people would often pour their tea into the saucer to cool it– then slurp it from there, as well.)

What sold it, in my eyes, though, was a strip of masking tape underneath the saucer. In old-fashioned script, it says “Grandmother Wagoner.” Some time later, I realized that the cup had a fine hairline crack down one side. No matter. It is worth keeping, for the sake of the grandmother who drank from it for so many years.

Do you have a family heirloom you cherish? Take it down. Get it out, and use it….carefully. Now, for its sake — and yours.

This post is by staff writer Cindy Brick. Cindy has several published books and many published articles on a variety of subjects. You can visit her business website at CindyBrick.com or visit her personal blog.

How New Cost Basis Reporting Rules Affect Investors

Due to changes enacted in the federal tax law by the 2008 Emergency Economic Stabilization Act new cost basis reporting rules went into effect on January 1, 2011. The result is that all investment providers will be required to start tracking each customer’s cost basis and holding period for securities purchased or acquired. When you sell a stock the financial institution is required to report your cost basis and your proceeds on IRS Form 1099-B. The reason for this change is that previously the IRS had to rely on the customer to report their cost basis and resulting gain or loss which often resulted in inaccurate reporting.

You may have noticed that your broker has included more information about your cost basis in your brokerage account overview. I have noticed that Zecco and ShareBuilder.com both now show the average cost basis. It is nice to be able to see at a quick glance the average price I paid for a stock and what my gain or loss would be.

Under the new rules if a customer sells less than his or her entire position of a security in an account, a broker must report a customer’s adjusted basis in the security using the first-in, first-out (FIFO) method, unless the customer provides the broker an adequate and timely identification of the shares or units the customer wants to sell. The pitfall here is that if you don’t notify the broker and the FIFO method is used it will likely result in a higher tax bill.

On the plus side the rules will make it easier to determine your cost basis. If you reinvest dividends it can be difficult to determine your cost basis. You can go to a financial calculator site that has tools such as an investment calculator, mortgage calculator, and such and find a cost basis calculator to determine your cost basis but it is much easier to have the broker do it for you.

Since I don’t sell often and when I do I usually sell my entire position the new rules will not have much affect on me. You do need to be aware of the rules when you sell though to make certain you don’t pay more taxes than necessary.

Investing On A Shoestring: Silver

This post is by staff writer Cindy Brick. Cindy has several published books and many published articles on a variety of subjects. You can visit her business website at CindyBrick.com or visit her personal blog.

Investing in Silver on a Shoestring

So you’ve managed to collect some extra funds for investing — but they’re not much. And definitely not what they could be. So why put them into anything except a nice dinner out, or a hot fudge sundae?

Because investment on the shoestring level can still pay off — handsomely.

Take silver. Like its flamboyant counterpart, gold, silver prices have been rising steadily in recent years. They still have some ups and downs, but the general rise has been up. And as one silver enthusiast, Jack Barnes, points out:

  “A historic breakout in silver appears to be under way – in India. In other words, silver prices are starting to make a run in terms of the Indian rupee – but not in U.S. dollar terms. Silver is the last major commodity to break out, and the fact that it’s doing so in a foreign currency is tantamount to an early-warning signal that U.S. investors should place their silver bets in U.S. dollar terms.”

Silver has some interesting points in its favor:

* It’s still a major component for manufacturing. Silver has the highest conductivity rate of any element, and any metal, making it of special interest to energy companies, as well as computer giants like Intel. “Silver is looking cheap and we’re seeing strong investment demand for small ingots, as well as good industrial demand from solar-panel makers,” said Dick Poon, Hong Kong-based manager of precious metals trading at Heraeus Ltd., (Bloomberg News).

*It’s easier to store in ingot form than gold. And it’s not just the price, either — gold is heavy. A standard ‘London Good Delivery,’ the most common type of bar according to Grissoms, is 400 troy ounces — 27 pounds! Silver, on the other hand is most commonly in 1,5, 10 and 100 ounce bars. (Each ounce of .999, or nearly pure silver, weighs 31.1 grams. More on silver bullion here.) You can buy gold in smaller bar sizes, of course — but it will generally be larger and heavier than its ‘white metal’ counterpart — and far more expensive.

   *It’s legal tender in coin form.  (Not that you would spend these at face value…just saying.)  Junk silver  is what you want — half dollars, quarters and dimes minted in or before 1964, when coins were still 90% silver. (The term “junk,” by the way, refers to the coins’ value as a source of bullion. They’re generally not collectible for other reasons.) These cover Kennedy half dollars, Washington quarters and  Mercury and Roosevelt dimes — and, if you’re ok with less silver content (40%, vs 90%), Kennedy half dollars from 1965-70.

You can still find these coins occasionally in loose change. Check your local Coinstar machine, a la Donna Freedman.  (Or just keep your eyes open when walking.) Rolls and bags of coins are also available on Ebay for marked-up prices.

The Brick, my spouse, is a veteran junk silver buyer. His tips: look for a reputable seller who offers free or low shipping costs. Buy in larger quantities — half-rolls or more. (“They’ll really nail you on shipping and handling if it’s just one or two pieces.”) Although ‘finish’ (what the coin looks like), isn’t high on his list, the more circulated the coin has been, the less silver it will contain — so look for newer coins in better condition. (Silver wears off gradually as its handled.) His standard procedure: skim the auctions, then check Coinflation.com. “Start with their ‘melt’ price: how much you would get, if you melted that half dollar down. Subtract the shipping cost. That will be my base bid on Ebay, from 95-105% of that figure, depending on what the market is doing.”

*Wear it…or use it. How often can you actively handle your investments? If you’re displaying silver trays, tea sets, or wearing silver jewelry, you can. Get the highest quality possible. For purity, 92.5% in sterling silver is about as high as you’re going to get — and look for a reputable maker’s mark. (An excellent online guide is here.) Going to Mexico on vacation? Taxco is famous for its graceful silver jewelry…and reasonable prices.

Life may be “as good as gold” — but it’s silver that can make the difference for the frugal investor.


This is the first of an irregular series on shoestring investment options. Sure, you can get involved on a large scale, but small, regular investments are doable, too. Please note: I am a certified personal property appraiser — but not a professional investment counselor. These are my takes on the subject, albeit backed up with resesarch and expert opinions. Invest at your own risk.

Saver’s Credit – Get up to a 50% Return for Saving Money

The Saver’s Credit is a great deal and allows you to get a tax credit of up to 50% of your savings if you qualify. Using the Saver’s Credit you may be able to take the credit of up to $1,000 (up to $2,000 if filing jointly) if you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans. Here is a table showing what your credit would be depending on your filing status  and income.

Single AGI

Head of Household AGI

Joint File AGI

0-17000: 50%

0-25550: 50%

0-34000: 50%

17001-18250: 20%

25551-27375: 20%

34001-36500: 20%

18251-28250: 10%

27376-42375: 10%

36501-56500: 10%

The Saver’s Credit is a great deal but as you can see it would be pretty hard to end up in the 50% bracket.  In addition to the income restrictions there are also an age requirement. For this tax year you have to be born before January 2, 1993, you cannot have been a full-time student during the calendar year and cannot be claimed as a dependent on another person’s return.

Another thing to keep in mind is if you don’t owe any taxes than this credit won’t do you any good. You can’t get a refund of the credit itself. The best it can do is reduce your taxes to zero which should result in an increased refund.  Last year my wife and I were eligible for this credit but with our exemptions and child tax credit our tax liability was already at zero so this credit did us no good. Since we have one less exemption and one less child tax credit this year I’m sure we will have some tax liability to reduce this year.

My wife and I might actually end up being in the 50% bracket this year.  I still haven’t totaled our income from last year.  Given the relatively narrow income range for married filing jointly it is also possible that we will be in the 10% bracket.

If you don’t make a lot of money and you contribute to a qualified retirement account make sure to determine whether you qualify for this credit. You can read more about the Saver’s Credit at the IRS website.

Investing Links

I apologize for the lack of posting here. February will be a much better month. There will be new posts twice a week plus a weekly link post highlighting some of the best investing posts on other blogs. This week I will be linking to the blogs of Yakezie Team 6. Most of these blogs I was already reading but I look forward to reading the ones that are new to me.

Money Beagle shares the Financials of Freelance. As a blogger I can relate to this post.

Vaerdi Financial explains why you should worry about the federal deficit. I’m not going to worry about it but I will prepare for the problems the federal deficit may cause.

Fat Guy, Skinny Wallet shares his week 10 weigh-in. He is doing great; I need to be more like him.

Not Made of Money shares the ins and outs of freezing your credit. I had a temporary freeze on my credit after having my identity stolen and it was an occasional pain in the butt.

Dollarversity shares a guide to getting ready for your tax return. Our tax return is going to be complicated this year plus I’m going to be doing taxes for several family members. Some preparation might make the process a little bit smoother.

Beating Broke wonders if recycling is bullshit. I don’t think it is but his article does show that it isn’t all positive.

Smart Wealth wrote a post about license plate registration fees being a way to tax the richer. I don’t have a problem with registration fees being more for more expensive vehicles since people do have a choice of how expensive a car to buy.

Be a Dividend Millionaire – Review

Amazon recently had the book,Be a Dividend Millionaire: A Proven, Low-Risk Approach That Will Generate Income for the Long Term, available for free. Since I invest in dividends and I’d like to be a millionaire I downloaded a copy to my Kindle. The book is written by Paul Rubillo, the founder of Dividend.com, so I figured he would have some good information to share.

The first third of the book is basic personal financial advice. If you regularly read personal finance blogs than you will be familiar with this basic advice. There isn’t anything wrong with the advice but it isn’t anything new and doesn’t have anything to do with investing in dividend stocks.

Dividend Investing

The book does finally get around to dividend investing but it still has only one short chapter that is focused on dividend investing. The information it does provide is very basic and doesn’t provide the detail you would expect from a book about becoming a dividend millionaire. You can get a lot more information on dividend investing for free by downloading the free dividend investing book from the Dividend Guy blog.

A lot of the book is devoted to tales of how the author made a living as a day trader. These were interesting but didn’t have anything to do with investing and also didn’t include enough information to be of much help to those who are interested in trading for a living. This was a fairly short book and I was able to easily read it in one evening. I think the author might have skimped on the content in the book hoping that readers would visit Dividend.com for more information. It made me less likely to visit his dividend site. This wasn’t a bad personal finance book for free but if I had paid the normal $11.69 price I would have felt ripped off. In my opinion there are much better dividend books out there and I’d advise you pass on this one.

My Picks for the Money Pros Index Fund Challenge

A group of personal finance bloggers are having a stock picking challenge and I am competing. The challenge is at Money Pros and the contest is simple. You pick three stocks and have $1000 invested in each of them. All dividends will be reinvested in additional shares. Whoever has the best return at the end of the year wins.

For my three stocks I just chose three stocks that I already own. My portfolio returned a little over 7% last year which isn’t bad at all considering the stock market as a whole was basically flat. My stock strategy is to pick stocks that consistently pay dividends and have a history of increasing their dividends. My stock picks follow with a little information on each stock.

Atlantic Power (AT) – This is a utility stock that offers a 7.7% yield. You shouldn’t buy a stock just for a high dividend yield but it is one of the factors I look at. The dividend payout ratio is fairly low and the P/E is low. It also has a good albeit short history of consistently paying dividends. Adding up all those factors makes this stock.

Gabelli Global Gold,Natural Resources & Income Trust (GGN) – This stock combines an 11% yield with a bet on gold and natural resource stocks. This stock might be a little risky but I’m betting natural resource stocks are going to rise this year. If I’m wrong I’ll still be getting the 11% yield.

Enerplus Corp. (ERF) – This stock has a nice 8% yield. This company invests in crude oil and natural gas assets. This is another bet that there will be increased demand for natural resources leading to a stock price increase. It has hedged most of its oil production for the next year which should help keep it a fairly safe investment.

Those are my picks for the contest but I’m not saying you should invest in them. Be sure you do your own research before you invest in any stock.

The stocks for the contest were all high yield stocks but I also own solid consumer stocks such as JNJ and MCD that pay much lower dividends. I try to diversify my portfolio with high yield and low yield stocks.

What do you think about investing for dividends?