Sunday, October 28, 2007

A Word of Advice on Chinese Mutual Funds/ETFs: Sell Some.

I generally avoid investing advice on this blog since I get paid to worry about those kind of decisions full time and it would be a conflict of interest with my employer to discuss individual equities here. However, I am going to make some comments on China today. What appears to be going on in their local A Share market is a classic market bubble. There are many Chinese investing for the first time and they do not know the risks associated with it, hence they are bidding prices ever higher. As far as they are concerned stock prices only go up. Also, there is no short selling in the Chinese A Share market so it seems like it is easier for inefficiency to creep into the system. Sure China is one of the fastest growing economies in the world, but that doesn't mean it should carry a P/E of greater than 70 as a market.

The hard thing about bubbles is predicting their end. I don't think anyone is particularly good at doing this. However, what you can do is choose not to participate once things get too frothy. Indeed if you have some China mutual funds (US investors can't own the stocks directly) or ETFs that are hold a significant amount of A shares it might be time to cash out some of those gains. I'd recommend selling down enough so that after taxes you have recouped all of your original investment. If you want to speculate a little longer with some of your remaining gains, that's your prerogative because calling a bubble's end is hard to do and they always seem to go on a little longer than anyone expects. While things economically are looking great for China at least through the Olympics in summer 2008, how long their market can continue to sprint depends on how long people are willing to pay any price for stocks. Rest assured that at some point there will be a big pullback (we indeed may be starting to see it now) and it will spook people and remind them that risk is associated with reward and then the Chinese market will come down just like technology shares did in 2000 and more recently like home building shares have done over the last couple of years. Those that have protected their principal will be glad and those who continued to speculate (or worse, put a boatload more money in because their returns had been so good) as the bubble intensified will lose a big part of their investment.

I'm not alone in this sentiment. Even Warren Buffett said people should be cautious with China.

Sunday, October 21, 2007

Review of Mint On-line Personal Finance Tool: The Vault is About Half Full.

Mint is a great concept. Create an account. Enter a few usernames and passwords. See your whole financial world from one control panel. While getting started is easy and the concept is great, the product could definitely use some refinement.

First, let me focus on the positives:

  1. The product is easy top use, it took me about 10 minutes to get up and running.
  2. They offer support for a wide range of financial institutions. I was able to link accounts from Wells Fargo, Discover, AmEx, Chase, Countrywide, and Emigrant Direct with relative ease.
  3. I like that they make recommendations to save you money.
  4. Finally, diving up your spending categories so you can see how much you spend in each category is a great tool that I typically have to wait to see once a year with my credit card statement.

For anyone who doesn't check all of their accounts regularly, Mint is a good tool to get started and I would recommend trying it. Even if one does check his accounts regularly he might like to try Mint, though it might not be quite as in depth as one might like. For a 10 minute investment, it is at least worth checking out for anyone if you ask me.

Now let me focus on some of the negatives:

  1. Where are the brokerage accounts? I couldn't link my Wells Fargo or Fidelity accounts. Ideally Mint should expand to support brokerage/retirement accounts to so I can monitor my whole personal finance life/net worth from one window.
  2. Some of the money saving suggestions don't make sense. For instance, Mint said I could save $1200 per year by switching to Verizon FiOS. Unfortunately, despite having my zip code, Mint failed to realize that FiOS isn't available where I live. All this recommendation ended up doing was waste my time and make me jealous of all those people who have Fios.
  3. Finally, I wish their categorization algorithm was better. For instance, in my checking account I have regular electronic payments to Xcel, a rather large publicly traded utility. There is no reason Mint shouldn't have a list of large utilities and automatically categorize regular checking activity as a Utility expense instead of requiring the user to categorize it manually. Both the frequency and the name of the company are dead giveaways. The same goes for Mountain Parks Electric, or Denver Water. The algorithm that categorizes spending should be smart enough to categorize these as utilities instead of not categorized.

So the bottom-line here is that Mint is a great alpha stage on-line personal finance tool. It has a long way to go before it replaces your budget or Microsoft Money or Quicken. I hope they eventually get there, because what they have is a great start. Now they just need to focus on expanding the functionality and improving some of the algorithms driving the savings and categorization suggestions.

Monday, October 15, 2007

Don't Be a Finance Pig: Be Sure Your Spouse is Financially Literate Too!

The quest for life insurance once again has the Armchair Fiduciary thinking about his own mortality. Perhaps the most important thing you can do for your spouse besides leaving him/her on stable financial footing is leaving him/her the knowledge to stay that way. If you are like the Armchair Fiduciary there is a clear division of labor in your house between finance and many various other tasks. While your significant other may not do the financial houskeeping very often s/he does have to know how. S/he should be aware of all financial accounts, insurance, bills, and debts you have and how to access and or pay them. Furthermore, s/he should have some basic understanding of the time value of money, the power of compound interest, and common sense rules like: "If it sounds too good to be true; it probably is." With these basic elements and your well laid financial plans, your spouse should be fine even if you face an untimely death. So take some time this weekend and bring your better half up to speed on some basic personal finance.

Saturday, October 6, 2007

Tired of Paper Annual Reports and Proxies? Go Online.

If you are like me, you are tired of having your mailbox filled up during the beginning of the year with proxies and very thick annual reports. Save your mailbox and save the companies you invest in some money by signing up for your proxies online. To do this, first call your broker and see if they can do it for you. If they can't then go to the websites of the companies you own directly and sign up for online proxy voting. Here are links to the sign-up (or investor relations contact if I couldn't find an electronic delivery sign-up) page for the twenty most widely held U.S. stocks just to save you some time: