The basic gist is that all knowledge (not skills, but knowledge) is vocabulary. When two surgeons are having an argument and they throws lots of big words at each other, reach a consensus and then move on with a new plan of action, its very easy to say “wow, those guys are smart, I could never understand what they do”. I’m suspicious that you could. Basically their specialized vocabulary lets them have a high level discussion in a short time, because they don’t have to explain the meaning of words to each other. If you tape recorded the conversation, then sat down with one of them, over the course of a couple of hours he could probably explain what each part of the conversation meant, in terms you’d understand. The benefit of their years of training and experience is they don’t need to explain all the background to each other, they can quickly have a conversation that focuses on the new elements of the situation and get to a decision.

Computer nerds love to do the same thing. I realize when I geek out with a fellow nerd that someone overhearing our conversation will be scratching their head in confusion. Its a very specialized vocabulary, but none of the concepts are particularly difficult (if you were willing to stop a patient nerd and get him to explain in detail what he’s talking about, I think anyone could follow the entire conversation).

When I started my master’s, meetings blew me away as people were throwing around terms I’d never heard before and I couldn’t follow the conversations to save my life. The best suggestion I got, right at the beginning of my grad work, was to keep a notebook, write down any new words or terms I heard, then figure out what they were later on. Once I had the vocabulary to interact with the rest of the group, it became quite simple to follow the conversation, identify the areas that were still up for debate, and throw in my two-cents on the subject in terms that the rest of the group could follow.

I don’t pretend that you can learn ANYTHING this way (just all knowledge). If you wanted to learn how to sail, you’re going to have to get out on a boat (learning all the vocabulary involved isn’t going to cut it). HOWEVER, I’m convinced that if you learned all the vocabulary first (port, starboard, trim, cut, etc, etc) you’d be in a position to learn the practical skills MUCH more quickly.

This leads to a simple approach to learning in a new environment.

1) Find a piece of information from that domain, such as:

1. “content management systems are a great way to let a platform provide the common infrastructure of web applications and let developers spend their time creating the functionality that is unique to the product”
2. “it can be argued that countertransference can be grouped into roughly three categories: irrational kindness, irrational hostility, and anxiety reactions”
3. “Examined are first-year medical students’ explanations of complex concepts in cardiopulmonary physiology following a lecture series. The results revealed systematic misconceptions by the students in developing a pathophysiological model of the problem.”

2) From that piece of information, ask yourself if you understand it. If you don’t understand it, identify the words you don’t understand. Go and find out what they mean. You may have to do this recursively (a computer science term), which in this context means that some of the words and terms used may be defined using other terms and words you don’t understand: keep looking up the unknown elements until you’ve defined them in terms you already understand.

3) Return to the original statement and see if it now makes sense. If it does, you’ve extended your understanding of this domain of knowledge. If it doesn’t, find someone who is knowledgeable in the area, explain your understand of the terms. Explain how given that understanding the piece of information doesn’t make sense, and ask them to explain what your misunderstanding is (even people with no teaching skills whatsoever should be able to see what you’ve misunderstood and point you in the right direction – the trick sometimes is to get them to shut up and listen to what you’re saying rather then letting them babble).

4) Find another piece of information, and repeat this process. You increasingly become an expert as its more difficult to find information you don’t understand.

I understand that words and terms can have nuanced meanings that are contextually determined and that people who are “experts” in an area will have a deeper understanding of these. Nevertheless, I believe that understanding is just a richer vocabulary (defined by how extensive your understanding of each term is, as well the number of terms known).

I also had two dividend payments come through: $211.50 from Rothmans, and $71.55 from Russel Metals.

Happy days!

The day after the call, I got on the phone to E*Trade and admitted that I’d had a margin call, told them that it was no problem paying it (and I’d already transferred the funds), but that I didn’t understand what had put me into a margin call situation. The man on the phone didn’t apologise, but it turns out that the problem was on E*Trades end and they considered a bunch of “safe” stocks (which they’ll loan 70% of the stock value on) as “riskier” stocks (which they’ll loan 50% on). He told me the call wouldn’t be enforced, and after checking my account assured me I was fine (even if I hadn’t transferred the cash in).

I used the situation to get more details about margin calls and what would have happened if it had been a real call. Apparently the speed on which they’ll sell your stocks depends how far over the line you are (he said they’ll give you 3 or 4 days if you’re just a little over, bit will sell immediately if you’re significantly past your limit). I asked him for good customers with a conservative portfolio if they ever will waive a margin call or increase their loaned %, and it turns out that its actually a law how much they can allow people to buy on credit (so short answer, no).

In the end I was happy to have my understanding of the margin account challenged (and happy that it was a problem on their end and not in my understanding). I learned some new things about my account, which is always a good thing.

Place Your First Spread Bet

Spread betting allows a trader to put up a fraction of the value of a share. Traders can make money from both up and down moves on a variety of global markets. Pick an asset, decide if it will rise or fall in value and bet a stake per point. It’s simple, and there are tools to help limit the risk of a trade!

Often when I get into “big chats” with people there will be something that bugs me, and for the longest time I couldn’t put my finger on it. I have *NO* problem with people disagreeing with me (its a short conversation otherwise and I don’t have much of a chance to learn anything). What bothers me is when people provide their conclusions rather than their reasoning.

“Vanilla is the best flavour of ice cream.” Is this true? I don’t know, clearly its an opinion, which is fine, but what I’m interested in is WHY the person feels that way.

“The minimum wage should be raised.” Is this true? Again, its an opinion. If you ask people way, they’d probably say “People can’t live in today’s society earning $7.75 / hour“. Is this true? It seems like another opinion. If someone showed me a very frugal budget, and the weekly costs couldn’t be met by $7.75 * 40, I might find this convincing. If you try to dig deeper than this (such as wanting to see such a budget), people get upset. Many economists have shown that a minimum wage hurts the population its supposed to help (by making small businesses re-evaluate their labour needs and potentially down-size – e.g. its better to have a job at $7.75/hr than no job at $8 / hr).

People will get upset with this point, flippantly say something like (“any business that’s willing to pay someone $7.75 can afford to pay them $8″), then re-iterate their conclusion that minimum wage should be raised.

At this point I usually start thinking I should have been hitting on the host’s cute niece rather than getting myself into this, but there’s no way out at that point.

I’m always at pains in my posts to explain my REASONING for what I believe. Sometimes in an on-line “discussion” someone writes “well, I disagree”, which is well and fine, but it doesn’t really add anything. Either the points I raise don’t lead to the conclusion I think they do (in which case its best to point out the faulty reasoning), or one of the points my conclusion is based on is faulty (which obviously undermines the entire argument). Sometimes I’ll give a litany of reasons, someone will pick out a semantic point with one of them, then feels they’ve demolished the entire argument. However, arguments sometimes stand on more then one leg.

I suspect that either people haven’t really thought out their position on a topic, so they CAN’T provide their reasoning, or they realize that an opinion is far easier to defend than an argument. The goal of an “argument” off-line (or a flame-war on-line) is sadly often to win, not to discover the truth).

I met a guy in university who had been in a debate club (I wish my high school had had a debate club), and his style of argument was pretty irritating as well (it mostly consisted of insulting the other person). His response to my assertion that OAC had value for high school students going to university was to laugh in my face.

Perhaps academia is the best place to have such extended, in depth investigations. Papers take time to write and publish, so almost like making an offer on a piece of real estate: when you write down (publish) your ideas they’re far more grounded then flippantly making an offer.

What do you think is the best forum for discussions where the goal is to honestly illuminate the topic of conversation and to get to the truth of the matter?

For starters, the invitation will specify a strict dress code: BLUE jeans and a t-shirt. The groom (Mr. Cheap himself) will be in BLACK jeans, and wearing a tuxedo t-shirt. The bride will be in white jeans and a white blouse (so she’ll look all frilly and nice compared to everyone else – who says Mr. Cheap doesn’t understand a woman’s needs!?!?).

Please go to my new blog to read the rest of Dream Wedding.

I was able to save $3,825 in cold hard cash in August. My last few invoices from my previous contract rolled in (there’s one last one we might be fighting about), but the cash pipeline is dry until my paychecks at the new job start coming in. I will have to pay taxes on this next april (I operate as a sole-proprietor when I do contract work, so no one does withholding for me), so tax HASN’T been taken out of this (and will need to be paid). I’ll also have to pay taxes on what I earned and spent on living expenses.

Looking over my last 9 months or so, it looks like $4K / month is about what I’m averaging. I figure I’ll be able to maintain about this level at the new job (although they’ll withhold the taxes, so it’ll be less, but no tax liability later, so it comes out as a wash).

The TSX, and especially some of the companies I like, offered some good buying opportunities during August, so I used my margin account (which I have for exactly this purpose) and bought some more BMO and some NA. This DECREASED my passive income (since the margin interest is higher then the dividend yield), but the dividends should rise over time and I’ll pay down the margin debt (plus I get preferred taxation on the dividends and a deduction from the debt) so this is a good thing. It turned out I miscalculated when I posted about this before, and my passive income from stocks is actually $32.64 after the recent BMO dividend increase (not -$4).

I always feel that whenever I mention margin I need to put a disclaimer in. Yes I do realize buying on margin is “dangerous” and that the people who jumped out of windows the the 20′s were margin traders. Buying a house is considered a reasonable use of debt (since you have an asset that can be sold to pay off the bulk of the debt, even if there was a market crash), and that’s how I view the stocks I buy on margin (very reliable, stable, established companies, I’m not buying the next Nortel or BRE-X on margin). I make sure that the consistent dividends will cover the margin interest, and also make sure that the margin interest is within my ability to cover on my own (so if the stocks disappeared but the debt remained, I could still pay it no problem). I’m *NOT* buying on margin and “hoping the stock goes up”.

That being said, if you were to ask me whether you should buy on margin or not, I’d probably say you shouldn’t. Unless you can confidently explain to someone *WHY* its a good idea to buy on margin and have an indepth enough understanding to give them a solid explaination, you probably shouldn’t.

Currently my passive income stands at about $299.27 ($266.63 from the condo – I got my property taxes lowered which bumped this up a bit, $32.64 from the stocks), which covers about 24% of my living expenses of $1,252.20. This is the same as last month , but part of this is due to the margin debt. If I applied ALL my free cash ($16,259.68) to the margin debt, I’d save $94.85 in interest per month, which would be 7.6% of my living expenses (I would also obviously lose the tax benefit of this debt). Alternatively, I could consider my cash (which is in a high yield savings account) as providing me $54.20 / month (PC financial is paying 4%), which would cover 4.3% of my living expenses. This is fully taxed though obviously.

MoneyGardener would probably like to ask at this point “Why so much free cash?”. Great question! I was keeping cash in case my job hunt took longer than expected and to potentially buy more property in the fall. I have a pre-approved mortgage at a decent rate, so I was hoping to buy after a rate hike hopefully shook some of the buyers out of the market, but unfortunately it doesn’t look like this is likely. After I get my first paycheck from the new job, I’ll evaluate if this cash is best served in a new property, in dividend stocks, as an RRSP contribution or just in a high-interest savings account until I pay my taxes with (part of) it.

On May 13th I wrote my first post, and talked about my intentions of what I was going to write about (what I’d learned about real estate investing, my hopes for the future, what my cost of living was and some of my goals to reduce it). At the time of posting this, I was spending $2,348.26 / month (and I’ve gotten that down to between $1,200-$1,300 / month, trying to keep it closer to $1,200). I was spending a whopping $195.21 weekly on food (I’ve been averaging $81.39 over the last 30 days and I’m still trying to get that down closer to that magical $60 / week).

I wrote an 8-part series called “Getting Started With Investment Real Estate” which was quite well received. I basically went through, as best as I could recollect, each step of my real estate investment journey. I intend at some point to revise this, turn it into a more coherent narrative and throw it somewhere for anyone to use, but that’s for the future.

Since this was well received, I tried another 5 part series where I talked about each of the ways to make money in real estate (along with the dangers of each).

I tried some humour / consumer advocacy when I wrote an open letter to ING direct. I’ve actually gotten someone from ING direct who’s visited my blog over 17 times, so this might have even got the message across to someone.

I managed to get some attention from Canadian PF celebrities like “The Canadian Capitalist” and Larry MacDonald. Unfortunately a post I wrote seems to have annoyed The Canadian Capitalist to the point he hasn’t linked to me or comment here since (oh well, if I wrote to avoid offending anyone this place would be pretty damn boring). This was more than made up for by the words of encouragement from Larry when I was going through a rough patch.

My philosophical postings were sometimes well received, and sometimes bombed.

The greatest value to me from blogging so far has been the opportunity to have some very, very bright people consider what I’m thinking about and provide feedback. Thank you all so much everyone who has commented on any of my articles! I seem to recently have provided some information which people have found to have a little bit of value in their life, and that’s been quite gratifying as well.

For anyone who cares about such things (we’re mostly number geeks I think), I’ve had 12,498 views on my blog, 299 on my best day (when Mike, MG and I got chatting after the jittery markets – I think most of these views were the two of them ). This is my hundredth post, and there have been 567 comments made on them. I imagine the top commentors have been Mike from Four Pillars, MoneyGardener and Telly (thank you all once again!).

Looking forward to writing up my 200th post!

In terms of the financial details, obviously its a pay cut from contracting. They’ll be giving me $65K, with 3 weeks vacation per year. I got them to agree to add on a couple of thousand in “furthering education” funds for me to use at my discretion to buy books, attend courses and whatnot (I’ve promised them it’ll all be related to what I’m working on).

As well as the pay cut, I’ll unfortunately be taxed more aggressively as an employee (*sigh*), but such is life. I’ve also signed up for the H&R Block tax course, so hopefully I may learn some ways to minimize my tax exposure (or at least make sure I’m not being a knob and over-paying).

In case anyone is reading this thinking wondering about a price comparison to their own salary, I’m a software developer with a Masters, and well over 5 years experience. I’m pretty sure I’m being paid on the low-end (but perhaps once they have me on site and I’ve shown what I can do things will be adjusted after the first performance review). What do any readers in a technical profession feel? Is Mr. Cheap selling himself too cheap?

Once I read that basically the more “unusual” whatever you’re doing is, the better the taxation. At a certain level this makes sense, the government is best served by getting the biggest chunk of the largest amount of economic activity. Based on this idea, the advice was that the more “typical” an activity (like working a 9-5 job), the heavier the taxation. Real estate investing is hardly new, but not everyone does it, and therefore its given a bit of a tax break. Additionally, its viewed that there’s a positive outcome for society (increased amount of shelter) and its worthwhile on that basis as well for the government to encourage the activity.

Anything you spend on your property is typically a deduction (i.e. you don’t pay tax on the money you earn to pay for that). So if you pay $1000 to get your property re-painted, you won’t have to pay taxes on $1000 of rental income (since you spent it on the property instead of putting it in your pocket). SOME people exaggerate their expenses to keep more of their money from being taxed, but I think this is a very bad idea (if you want to pick a fight with someone, don’t go after Revenue Canada!).

The real advantage (which I’m looking forward to) is the ideas that you can “depreciate” your property. Say you had a rental property that had earned you $250 / month ($3000 over the year). Typically if you were in a 40% tax bracket you’d owe $1200 in taxes on this money. What depreciation lets you do is assume that the value of your property declines over time. You get tax savings based on this decline. When you sell your property, you pay capitial gains taxes on the sale price – the purchase price + the depreciation. Thus depreciation lets you defer taxes until you sell the property (which its obviously better to pay the taxes in the future instead of right now). ADDITIONALLY, depreciation lets you not pay taxes on income, and instead pay it later as capital gains (at half-rate) (Please see the comments, I misunderstood this).

Obviously I don’t have the best grasp on this yet (I’m planning to take the H&R block course this fall so that I’ll gain a better understanding), but the basic ideas that real estate investors all seem to agree on is that you pay a lot less taxes on money you make from real estate then money you make from other investments.

Ways that you might abuse this concept to lose money is when you pay for a deduction (e.g. if a real estate deal is a bad deal, doing it for the tax deduction is probably a bad idea). Also, if you get too caught up in this idea and start doing illegal things (again, a very bad idea), you might be trading slight gains for jail time (no fun).

Networth: $83,207.05

This is an increase of $3,221.18 (4.03%) over June. I’m suspicious that given my current approach (get a reasonable contract, work at it and save aggressively) this is probably what I can expect to be saving, which is a little bit lower than the $5,539 I was hoping for in the past (what was I smoking? ). I had to pay the first and last month’s rent at my new place, which was a little bit of a harder hit, and I lost about $900 in my E*Trade account, so I *think* $4600 might be a reasonable expectation (assuming I find another contract as lucrative as my last one which is far from certain).

As mentioned before, there were some fairly major changes in my life in the last month, but I’m still getting checks from my last job (they pay me 30 days after I submit invoices, so I should keep getting paid for another month). If I can find a job sooner, I might get a week or two of “double pay” which would be nice.

In terms of passive income, currently I stand at:

BMO (136) – $25.90 / m
ROC (705) – $62.96 /m
RUS (159) – $23.85 / m
NA (82) – $16.40 / m
Margin debt – $76.98 /m (this is slightly higher as no dividends were paid in July)
Net: $48.19

Condo – $265.99 / m (this increased due to a lower mortgage amount, and thus lower interest and by getting my assessment, and thus my property taxes, lowered)
Passive income: $314.18 / m
26% of cost-of-living from passive income (this improved because of my new lower cost of living, which may not be sustainable).

Obviously since passive income is what I’m really after, I need to be making more investments instead of sitting on a pile of cash. Without steady work though, its pretty hard to dump cash into E*Trade or another property. My current plan is to find another job, and once I’ve started at it, then buy another property.