The fire was caused by fumes from turpentine that had been used to polish some wood that night, which made their way under the hot water heater and ignited when that went on.

My father was smart enough to have had a really solid insurance policy. This was in part due to the fact that his parent’s house had been struck by lightning when he was growing up, and they had a minor fire.

So in just one lifetime, my dad had been through two house fires, both caused by extremely rare situations.

He also practiced personal injury law for a few decades, and saw firsthand, hundreds of times, what happens when you have an automobile accident and aren’t sufficiently covered.

Not surprisingly then, I’ve always heavily insured nearly everything in my life. It amazes me that some people don’t have renters insurance, considering how cheap it is. Mine has averaged about $10 a month!

Last month, when my wife and I hired movers for our apartment to house move, I noticed on the contract that the standard insurance during a move is $0.60 per pound. So say a $2000 computer gets dropped and broken. That computer would only be insured for about $40! Pretty pathetic. Instead, we opted to pay an additional $80 which would cover us for up to $10,000 of damages based on the actual value of the item.

We recently got homeowners insurance, and also got pretty much the maximum coverage we could get there as well. The only exception is with the deductible, as sometimes a lower deductible can really increase costs, and you may not even want to make a claim for a few hundred when there’s a good chance it will increase your premium anyway.

It was a bit challenging to find quotes for homeowners insurance, as there are so many options out there. In the end we went with a local, word of mouth recommendation, but you can also check here for free insurance quotes online.

I was really impressed with their online interface. Zillow gave a good amount of information but was frustratingly slow. Redfin was fast, gave lots of good info, and was easy to filter. So I started using it more and more, including to scout out open houses.

After a few months of open houses, we decided to get more serious about finding a house. I considered using Redfin, but I was hesitant: Surely they couldn’t provide as good service as a “real” broker could, right? My wife and I both knew pretty much exactly what we wanted, and spend most of our lives on the internet anyway, but we still thought we might miss something by not using a traditional broker. Boy were we wrong.

We called a broker we met at an open house, and started looking at houses with her. It was a big disappointment. We wasted time at a lot of terrible houses, and felt extremely pressured towards certain ones. She would also say things like “Well if this is the house you want I would make an offer above the listed price just to make sure because it’s going to go quick”, and then I’d notice 6 months later the house went for 15% below its listed price.

Part of the problem was that this broker just didn’t seem to understand what we wanted. I was getting daily emails from Redfin with new houses, which I’d look at before work in the morning, usually dismissing all of them. And yet later that week I’d get an email from our broker excited about the exact same houses I had quickly dismissed.

After a few months, we decided to “break up” with our realtor and give Redfin a try. I placed a request to see a house we had wanted to look at that went off the market, but had just come back on. Literally five minutes after I placed the request, I received a call from the local Redfin tour coordinator, and we scheduled a tour in two days. I was very impressed with how prompt they were.

On our second trip out with Redfin, we found a house that we decided to place an offer on. Filling out the offer form on the website was a bit nerve-wracking, partially because they ask you how much you want to offer – something that is normally suggested to you by your agent. Redfin did provide good tools and guides on their website though for determining a good offer price though. We heard back fairly quick from Hannah, one of the main Redfin Boston agents.

The experience of putting together the offer went pretty smoothly, though I did feel like I could have used a little more guidance when it came to the offer price … I almost felt as though Redfin wasn’t allowed to suggest a price, though I don’t think that is the case.

In the end, this particular house fell through due to a terrible inspection.

Over the next few months, we worked with Madeline, an excellent Redfin tour agent. We loved that she never ever pressured us towards liking a house, and always gave her honest opinion when we asked.

Then one day late last summer we found our house, and gave Hannah a call on the way from the house. That night Hannah put together a comparative market analysis on the house and the next day helped us put together an offer. We received a much higher counter-offer, but this time Hannah gave us some very specific advice on how to respond which was very helpful.

We gave Redfin a thorough testing over the next few months. While our inspection went fairly smoothly, we did need to have a few contractors look at some issues that came up. Hannah was great at recommending people for the job, and also took care of making sure a Redfin agent would be present when the contractor showed up.

Then we had an issue with the appraisal, which was a nightmare in many respects, but Hannah and Redfin were there the whole time for us.

I think my only criticism of Redfin is that they only have three closing agents for all of Boston, and I often felt as though Hannah was overworked. For example, she seemed to be at a closing nearly half the days I called her! She did always get back to me the same day though. More importantly, she took as much time as was needed to explain things and help calm my frayed nerves.

I also got the feeling Hannah was a really good agent – she seemed to know a lot about the business. For example, when I mentioned we’d be using the bank’s attorney for our closing, she strongly recommended against it and gave me a list of lawyers. We went ahead with the bank’s attorney anyway and regretted it immediately. So we hired one of the lawyers Hannah recommended, who ended up being fantastic, and was absolutely essential when we ran into issues with the purchase & sale agreement and appraisal.

We finally closed, which funnily enough was the first time we met Hannah in person. Then 10 days later, as promised, we received a check for over $4,000 from Redfin. I mention the specific number because I want people to know that you do actually get a non-taxable check from Redfin for the amount they tell you you’ll receive. We actually got paid to buy a house!

One note though on that commission refund: I mentioned earlier a house we put an offer on that fell through. The refund shown on that house’s detail page on Redfin showed a refun around $4,000, but after we placed the offer the fine print showed the refund for that house would have only been around $2200. This is because that house’s commission was 2%, while the one we purchased was 2.5%. Apparently Redfin bases their refund approximation, shown on a house’s detail page, on 2.5% even when that same page lists it as 2%. This seemed a little bit unfair, but since we did end up with a house with a 2.5% commission I was of course less bothered.

In the end, I wholeheartedly recommend Redfin to anyone who feels as though they have a good idea of what they want from a house, and who doesn’t mind spending time on the internet searching out houses.

Now that the check has cleared, I can even say that I would have gladly used Redfin even without the commission refund!

On that note, a quick tangent. I suppose I shouldn’t be going on tangents in the first paragraph of the first article on this subject, but this is important. I highly recommend you watch shows like House Hunters and Property Virgins so you can take notes of exactly why not to purchase (or avoid) a house. For example, is there horrific wallpaper in a bedroom? Guess what – you can strip it off! Don’t like the ceiling fan in the family room? It can be changed! Choosing which house to buy based mainly on the size of the margarita bar in the kitchen? Probably not such a great idea.

We’ll get more into the details of what to look for in a house later, but before that it’s important that you figure out if you can actually afford a house. In order to do that, you first need to understand the costs of owning a home.

It is absolutely, positively imperative that you calculate exactly how much all of the various parts of owning a home will cost you, and then decide 1) if you can afford a home at all and 2) what price range you can look at.

Let’s assume you are renting right now. Here are the costs you are concerned with as a renter:

1. Rent
2. Renter’s insurance
3. Heat
4. Electricity
5. Water

Not much, eh? Some of you may only have (1), in which case I insist you get renter’s insurance immediately. It can cost, literally, a few dollars a month. It not only covers, say, your apartment burning down, but it also covers thefts from your person and also injuries that occur to others inside your apartment. Pretty important stuff for a few bucks a month.

Of course not everyone pays utilities when renting. Or you may only pay for electricity but not heat, or vice-versa. Also, some rental units charge for things like parking or a garage, so don’t forget about those if that situation applies to you.

Here are the costs of owning a house:

1. Mortgage
2. Homeowner’s insurance
3. Property taxes
4. Private Mortgage Insurance
5. Repairs
6. Heat
7. Electricity
8. Water

Mortgage

I know the term mortgage will be obvious to most people, but if not: Your mortgage is the big chunk of change you pay each month to the bank (instead of a landlord). Your mortgage payments go towards two things: Interest on the loan you take out to pay for the house, and payment for the house itself. The latter is called your principal. These numbers are always combined when talking about the mortgage.

Fun fact about mortgage payments: Say your mortgage payment is $1500 a month. The first year of owning a house, the vast majority of that payment (we’re talking like $1475) goes just towards paying the interest! So even after a full year of “owning” your house, you actually only have a few hundred dollars worth of house ownership.

Homeowner’s Insurance

Kind of like renter’s insurance, but a lot more money, and a lot more important. Renter’s insurance is important, but if your apartment building burns down, you don’t have to worry about rebuilding it.

Property Taxes

When you own a home, you own the land it’s on, and the land surrounding it as well (this is referred to as your lot). The city that your land is in taxes you for living there. Those taxes go towards various city services, including the school district, which often has a big impact on your taxes. Property taxes usually range from 0.5%-3% of the assessed value of your house, annually. So a $300,000 house taxed at 1% will cost you $3000 per year.

Private Mortgage Insurance

If you are using less than 20% of the home’s purchase price as your downpayment, you will have to pay private mortgage insurance, or PMI. PMI is basically the price you have to pay to the bank in order for them to feel comfortable with you purchasing a house where your actual stake is less than 20%. Once you reach 20% equity in the house, most lenders will remove the PMI.

PMI is usually about 0.8% of your mortgage cost.

Repairs

Unlike an apartment, where your dishwasher breaking means nothing more than a call to the landlord, everything that breaks in your house is your responsibility – and it’s not just the appliances you have to worry about, as you’ll soon be repairing items in your house you didn’t even know existed.

This is a tough one to estimate. One month, your microwave may break, and it’s a quick $75 to replace that. But the next month, you might find out your roof needs replacing for $15,000. I’ve read that, over the lifetime of a house, repairs tend to average about 1-4% of the house’s value per year. While you won’t be paying this cost every month, it’s very important to have this money set aside.

Utilities

Utility costs vary greatly depending on where you live, how big the house is, and the type of system it has. Generally, estimating an increase of about 15% for your electricity bill should be safe, unless your current apartment doesn’t have laundry or a dishwasher. Your heating bill is more difficult to estimate, but you can expect it to increase dramatically. You may not be using electricity in those new rooms you have, but you sure will need to heat them.

Those are all of the major additional expenses you’ll be paying when you own a home. But there are some other expenses to keep in mind as well. For example, are you moving farther from work? Be sure to factor in the additional money you’ll be paying on gas or tolls. Buying a house with a big yard and big driveway? Soon after you move in you’ll need a lawnmower and snow-blower (or snow removal service).

There are also one time costs associated with purchasing a home. Most of these are wrapped up in something called closing costs, which are the sum of the dozen or so fees you pay to banks and lawyers for assisting you with the contractual part of buying a home. You’ll also be paying a home inspector for every house you see, which usually costs between $250-$600. Lastly, if you are hiring movers, you’re looking at around $1000-$2000 in costs there (though that can definitely vary depending on your situation).

There is some good news though. You won’t pay a dime to hire someone to help you look for a house. Instead, your realtor gets paid, in essence, by the seller, who sets aside a commission for both their broker and yours. Of course, in a way you do pay for this, since the seller has to factor that into their costs when deciding on the price to sell their home, but it’s not money directly out of your pocket.

You are now familiar with all of the extra money you’ll be spending after you buy a house. In the next article, we’ll figure out if you can actually afford all of that!

Turns out we didn’t have to worry about buying a house, because of the eighty or so we’ve seen in person, and the several hundred we’ve seen online, only four have interested us. Yet even of those four, none was a sure bet. The latest one was the closest, but it fell through after a dreadful property inspection. We’re currently in the last steps of the inspection process on a house we really love, but I’m not counting any chickens this time.

Buying a house is absolutely one of the biggest financial challenges I’ve faced. There are so many steps to the process, so many places to go wrong and so many places where understanding the process better or having had access to another resource would have helped immensely.

So I decided to dust off the ol’ personal finance blog and write a series of posts on the home buying experience, starting with figuring out if you can afford a home, and ending with (for the time being) closing the deal.

Part 1: Introduction
Part 2: What it Costs to Own a Home

But no one ever really told us what made having a child so expensive. Some people mentioned the costs of outfitting the nursery could amount to several thousands of dollars. Looking at catalogues from fancy furniture stores, I could see how this would be the case. Even Walmart furniture seemed expensive. But we are lucky enough to have wonderful family and friends, and will be receiving (or borrowing) the vast majority of our baby related items from them. For the rest, we turned to our old standby, Ikea, whose “Gulliver” crib has glowing reviews on the internet and yet only costs $99, 1/3rd to 1/5th the cost of other cribs we looked at.

Someone else mentioned all the hospital costs, and we’ll get hit with our insurance deductible, but that should be it. A hit to our finances, yes, but nothing major, and just a one time cost.

Diapers? They were always the first thing mentioned with baby costs, because of how many you go through. But I did some searching and found Huggies on Amazon, using subscribe-and-save, for about 15 cents each. And they’ll automatically be delivered once a month.

So where do all those ridiculous costs lie? Daycare.

My wife and I both work full time, and we both really enjoy our jobs. She would probably go crazy being at home all day, and I’m at a point in my career where I’m not ready to work from home. So we’re looking at full time care, 8-5, five days a week. The cost? About $1,400 a month.

Let’s think about that number. $1,400 a month is $16,800 per year. That’s equivalent to having a full time $11/hr job. It’s also roughly equal to a mortage for a $300,000 home. You could lease a pair of Mercedes for the same cost.

Pretty unbelievable when you think about it.

“As I mentioned in my previous post, now that I have the opportunity to actually invest a bit of money into the stock market, I am suddenly concerned about whether this is the right time to do it“

This was only about four months into my learning about the market. At that point, the market was flying high. The Dow Jones had gone from 11,000 to 13,500 in about six months.

Now I didn’t know much about the market, but this seemed a little odd to me. So basically, it was normal to put, say, $100,000 into the market, and make $22,000 in a few months? Was this whole investing thing really that easy?

I couldn’t believe that, so I thought why not bring up a graph of the stock market for the past decade or so, and see if there had been similar gains in the past and look at what happened after. Turns out I had stumbled upon the massive field of technical analysis, which is using a system filled with terms like “marubozu” and “Bollinger Bands” that are used to give insight as to where a stock will move next.

Of course I didn’t know about any of those techniques yet, so I did something simpler: I looked for patterns in the graph. And this is what I found (this is the same graph I posted in 2007):

click for a large version

As you can see, I just circled all periods which looked similar to the graph of the past few months. Then I made a simple observation: Every single time there was a gain like we had just experienced, the market either stagnated, or dropped, for several months after.

If only I had listened to my own advice. Because as it turns out, the market stagnated for a few months, and then dropped … by 50%.

Am I a market timing genius? No. Did I just get lucky? Quite possibly. Do people ignore obvious signs of danger in the middle of market euphoria? Absolutely.

Of course, if I were to try to apply this approach in the future, there’d be a few problems. The biggest one being that while those gains to seem to signal temporary changes in the market, they don’t always represent a peak. So there’s had to be some way to know when to get back in.

Still, I can’t help but wonder what it would have been like if I had just listened to my instincts, and passed those feelings along to family and friends who were much more heavily invested.

Yeah, remember just a few months ago, when the Dow Jones was at 9000?

I do have to admit that my interest in stock investing has taken a clobbering over the past year. Part of the reason is that Zecco, the broker which offered free stock trades and allowed me to purchase literally just a few shares of stock to trade with, changed their requirements from a cash balance of $2,500 to $25,000. Ouch.

But a bigger part of the reason is that in a market like this, I just don’t see a point in picking stocks – unless you’re shorting them. Every time I loaded up the Wordpress admin page to write a new post, I’d get a few sentences in before I would just give up.

Meanwhile, the past half year has introduced some new challenges into my personal finance life. My wife has finally found a job she is very happy in, meaning we now both have steady income streams to manage. We’re expecting a child in just two months, and after “congratulations” most people immediately bring up the cost of having a child. We’re also beginning the long process of buying a house.

So I thought I’d brush off the digital dust from this site and try writing a few posts. I made a few small updates as well, like removing the goals meters and investing widget from the sidebar, as well as a few more personal posts, as I’d like to take down the drape of anonymity I wrote this blog under.

So how do you pick an individual stock? Here is the system that I use. Now for full disclosure, I am not a season investor of 30 years – instead, I’m just going on about two. But I follow the advice of the investment advisory company I work for, which has a combined century of knowledge on the subject. Picking stocks using this method I was up about 40% for 2007, and am down about 10% this year.

This stock picking method focuses on looking for growth stocks that you will hold, on average, for about four to six months.

1) Check your market timing. Before you even begin to spend time looking for a stock to purchase, it’s important to know whether or not now is the time to buy any stock. For example, in June 2008 the market timing system I follow basically said to get out of the market. So I did, and missed a 30% decline in the market.

Even though market timing indicators are based on the broad market, it can be extremely difficult to find strong growth stocks that are able to shrug off a weak market – let alone a crash like the one we’ve experienced this year.

You don’t have to be quite as concerned about the opposite, when the market is “overvalued.” It’s true that as a buy-and-hold investor, this would be a bad time to purchase. But the time frame of a growth stock investor is short enough that you don’t have to be constantly looking for tops in the market (you do, however, have to be wary of tops in the stocks you own).

Lastly, there are times when you may want to be only partially invested. For example, from October 2007 to June 2008, I gradually moved from fully invested to cash, as it became more and more difficult to find individual stocks that beat the market.

2) Narrow the field – use a stock screener. Stock screeners are exactly what they sound like – screens which filter out stocks you don’t want and leave you with a smaller number of stocks which warrant a closer look. There are thousands and thousands and thousands of stocks out there, so a stock screener is essential for narrowing that field so that you can spent your time only looking at stocks which show potential.

I use the Motley Fool Caps stock screener, for reasons I will explain in the next step. Here are what my settings look like, and the reasoning behind them. I’ve only mentioned the settings that I change.

• Custom Market Cap: $250M to $100B. Basically, this eliminates micro-cap stocks, which we don’t dare touch. It includes large-cap stocks because even those can be big growth stock winners (look at Google and Apple).
• CAPS Rating between 4 and 5 stars.
• Active picks: 50. Otherwise the star rating system doesn’t have enough samples to make it reliable.
• Current price minimum: 5. Anything priced below that would be too volatile for our tastes.
• 4 Week Price Change % Min: 10. This gives us stocks that are in an upward trend over the past month
• 13 Week Price Change % Min: 20. This helps to avoid stocks just on a temporary upswing.
• 3 Month Avg Daily Volume Min: 250,000. Anything below this volume also helps avoid volatile stocks.
• EPS Growth Rate and Revenue Growth Rate: 20. Helps us weed out stocks which are not actually growing in revenue.

Now, I do sometimes make adjustments to these numbers. For instance, running this screener in the current market conditions returns me only one stock. So often times I’ll adjust the 4 and 13 week price change lower in order to include more stocks to look at. Often times these are more of a “watch list” type stock, as I don’t really want to purchase a stock that is downtrending, but in bear markets it’s always good to have a few names so that you’re ready to purchase when the market turns.

3) Crowdsource your research. This step is a favorite of mine, and one that I added personally along with the other steps I learned from the company I work for. I have a full time job that does not involve researching stocks all day. However, that research is important to finding solid stocks. So how do I get around that? By having other people do it for me!

It’s risky, of course, to rely on the advice of a single person for investing recommendations, whether it’s your barber of Warren Buffet. But the collective knowledge of hundreds or thousands of investors can be incredibly useful.

I use Motley Fool’s Caps, mentioned above, for most of my crowdsourcing. It’s a popular site, which means lots of opinions, and has an intuitive interface for navigating through stocks. So when I use their screener, I’m not only able to screen against common fundamental and technical filters, but also against the collective opinion of the crowd at the same time. This helps to eliminate stocks which may look good on paper but have a flaw you can’t necessarily glean from the initial numbers.

I have found very few high rated stocks using this method that turned out to be real duds. I do sometimes find stocks I consider to be good picks rated 3 (out of 5), but they’re usually extremely well known names which therefore attract a lot of different opinions (such as Apple).

Don’t stop with just looking at the star rating. Be sure to read through the opinions and find if there is a common theme among the opinions. This also helps with determining if there is a “prejudice” against the stock. Take for example Crocs (CROX). This was a very poorly rated stocks all throughout 2007, even though it posted 300% gains at one point. But people rated it poorly because “the shoes looked stupid.”

Lastly, I also like to check investing blogs to see if they have any opinion on the stock. I usually start with Seeking Alpha and go from there.

4) Check the numbers. Our screener helped us get rid of any really unattractive numbers. Crowdsourcing helped us narrow down the field even further and hopefully gave us at least a handful of potential stocks. Now we need to look at those stocks closer to make sure they meet our criteria.

I use software we have access to at our company to get these numbers, but any major investment site (such as Yahoo! Finance) should have them as well. Here is what I’m looking for:

• Increasing EPS (earnings per share) quarter after quarter
• Increasing sales
• Increasing fund investors
• Increased earnings estimate for the current and following year

Pretty simple, eh? Normally it would be dangerous to look at just these numbers, but by this point, thanks to the previous steps we took, we are (hopefully) looking at only quality stocks now, and are just confirming our findings.

You may notice that one figure I have not mentioned is the P/E, or price to earnings ratio, which is the holy grail of many investor strategies. The reason is that it just doesn’t work for this growth investing strategy. In fact, a high P/E ratio is often the sign of a skyrocketing growth stock! Take First Solar (FSLR) as an example. You could have made 400% from this stock last year, but only if you weren’t scared away by the P/E ratio of 150.

5) Check the chart. By this point, we know we’re looking at a pretty good stock, and our market timing signals tell us it’s a good time to invest. So do we just go ahead and buy our shares? Nope! We have to make sure that this is a good time to invest in this particular stock. This requires a bit of technical analysis, but I promise it’s not too difficult.

Go to your favorite charting site. I prefer StockCharts.com. Put in the stock and look at it for the past six months (you’ll also want to check a full year back as well). The only technical indicators you have to concern yourself with are moving averages, so put in a 25 and 50 day moving average.

Now, there are entire libraries filled with books on technical analysis, but here are the basics you are looking for:

Red Flags

• The stock has had sharp gains (around 10%) over just the past few days without any news behind it. While this does show strength, it can also result in your buying at the top, which you never want to do. Wait until the stock pulls back at least a few points before considering investing.
• The stock has one or more tops (a top on a chart simply looks like a hill). Tops represent resistance, and means the stock is having trouble going higher than those tops. It can be dangerous to buy right before a top, as a stock that doesn’t break that top is often in for a downtrend. Two tops is worse, and three tops is a very bad sign.

Green Flags

• The stock is trending upward but it still within a reasonable distance from its 25 (and even better, 50) day moving averages.
• The stock has recently broken then previous resistance, and even better is at new highs. Assuming that the break through wasn’t too high of a spike, this is an excellent sign that the stock is on its way to higher prices.
• The stock has had sharp gains due to good news. A classic example of this is a stock that rockets higher due to surprisingly positive earnings results. Even though this places a stock higher above its moving averages, it also is a very strong sign that the stock is headed higher.

These tips should help serve as general guidelines as to when the best time is to purchase the stock you’re looking at.

And that’s it. You now have a basic tutorial on how to find, research, and buy individual stocks on your own.

I hope to follow this post up with a step-by-step example using a specific stock. I also would like to put together a guide on how to actually purchase a stock once you’ve found one you like, as it’s a very simple process that still manages to scare away a lot of new investors.

The beginning of this year wasn’t bad either, and I was up 8% in my personal portfolio while the indexes were down 5%. My shared online portfolio was doing good as well, due to a well-timed (at that point, at least) purchase of Crocs (CROX).

And then everything started to unravel. My big energy winners in my personal portfolio, such as Cleveland-Cliffs (CLF), began to lose their steam. My online portfolio got slaughtered when Crocs dropped 45% in one day. Then the turmoil in the financial sector managed to snuff out any growth stocks which began to reach new highs.

I am now 85% cash in my personal portfolio and 100% in my online portfolio. Year to date, I’m still beating the indexes, but not by much. I have market timing to thank for that though, which showed clear indicators to begin moving into cash 6 months ago. I can’t help but feel bad for people who are looking at less money in their accounts now than they did in early 1999. I am thankful that we don’t have large amounts invested in the market at this point, and that we don’t need any of the money that we do have invested anytime soon.

At the investment company I work for, most of our subscribers are unfortunately not in the same situation. However, our flagship publication has been, on average, 70% cash since April or so, helping to alleviate losses. It is awfully quiet here though. Sometimes, when the market is in turmoil, our phones ring off the hook and emails pile up. Other times, like now, people seem to rather avoid having anything at all to do with the market – much like I am now.

I still read financial news, and follow along with a few dozen stocks, but I don’t spend nearly as much time researching individual stocks. I became frustrated over the past few months when I would find a storng looking stock that would be slaughtered only a week or two later due to this incredibly unstable market condition.

So for now, I’ll sit by patiently, watching and waiting for the right moment to jump back in.