Dear Future Self,
I want to make sure that you end up successful and I thought I’d write you a letter to explain how I plan to go about it.
You may remember the 19th of July 2015. Grandpa passed away yesterday and it made me think a lot on the value of time. And I learned something.
I spoke to him over the phone a couple days ago, while he was at the hospital. He wasn’t feeling well, but this was one of his regular visits. We had a short conversation.
Companies profit margins have been tumbling for the last 2 years while the stock market reached ever higher valuations. This divergence is the necessary condition for a market crash which is now certain and probably imminent.
The S&P500 should probably be trading at 1600 today, not 2000.
Don’t take my word for it, this is a well documented phenomenon that has happened already 6 times in the last 50 years.
You’d like to prepare your kids to be financially savvy for their future.
But they don’t care or don’t seem to be interested. You are looking for a way to make it attractive for them to learn.
Here’s a way.
(This is Part 2 of the analysis on the Greek situation. If you haven’t done already, you should read Part 1 here)
First we met with Helena, a 40 something professional with a political science background, born and raised in Athens. She recently had to leave Athens for Crete to find a job as a receptionist in a hotel.
During our recent 2 weeks vacation in Amazing Greece we realized that as tourists it was extremely difficult to see how this country was affected by the crisis. All shops were opened, ATMs had cash, everything was running fine and people were the nicest we had met. Was the country really about to default? Impossible to tell. So we spent some time with several individuals to ask them how the crisis was impacting their day to day life.
Here’s what we learned.
The sky is completely blue. The kind of deep blue that gradually fades into a white horizon line, as far as the eyes can possibly see, before it meets with the blue of the sea. Boats of all kinds are roaming around the old port, some 900 feet below us, at the bottom of the caldera. Farther in the horizon is the volcano that made the island famous, with its hordes of tourists and its hot springs.
(note: this post has been updated with data up to 1st May 2016)
These days, the S&P500 is reaching new records and the close on Friday was at 2116. News outlet are now able to regularly announce that a new record has been established. Comparing with the peak values of the year 2000, the S&P500 has climbed 40%, from its 1500 highs.
But has it really? Was it a good idea to invest in 2000 since the index is now 40% higher?
It was not a good idea. Inflation took it all away.
100,000. That is the number of lay-offs in the Oil & Gas industry in the last 6 months as reported by the WSJ and more is expected to come throughout 2015. Companies are fighting to protect their business as the price of the oil has fallen by 50% since last November to 55$ today. While this is a nice gift for anyone going to the pump, it is a worrying sign for people like me working in the industry.
The inspiration of this writing comes from a post by EvenStevensMoney on Financial Independence Day, where he tracks the years at which bloggers are planning to reaching their Financial Independence. 50% self-motivation, 50% peer-pressure, 100% great idea.
The MM family plans to reach Financial Independence in 2022.
Investing in index funds is great: the portfolio is widely diversified (eg. throughout an entire industry or country’s economy), the management cost is low (Vanguard’s S&P500 is 0.05%) and the return is aligned with the market tracked. This is a great alternative to actively managed funds where the returns could be higher but the also higher expenses often negate those benefits.
What if there existed an actively managed fund, widely diversified, with a low management fee and a higher return than the broader market?