Financial Uproar

Introducing The Financial Uproar Less Than Cash Index

2013-05-17T05:06:16Z

Or NAMBLA for short.

Hey, remember a couple of months ago when we discussed how you can easily beat the market? Since I know you’re not going to click back and read that, let me give you the condensed 411. (411 is what the kids say instead of ‘info’. I know this because I was cool, once, in 1997. That was a glorious day.) All you need to do is buy stocks that are trading at low price to book or price to earnings values, and you will outperform the market. Assuming, of course, you can find a way to buy every undervalued stock.

Us stock pickers can’t do that, and unfortunately there’s no ETF available that just buys stocks with low price to book values. That ETF would be complex and confusing and would make a grown man weep, perhaps a little more than usual if that man was me. So we research, spending time and energy trying to find stocks that are the best of the cheapest, since cheap stocks are usually cheap for a reason.

But forget about that. How about we look at the cheapest of the cheap stocks? So I decided to run a little stock screener, looking for stocks that traded for less than the cash they had on hand. From there, I had to filter further, taking out companies with a bunch of debt, since that kind of goes against the spirit of this exercise.

From there, I took away every Chinese reverse takeover, since nobody wants to wade back into that mess. And that’s it.

I came up with this list on Sunday, so prices will be a little different than listed, but here’s the index, in all it’s glory.

This new index is simple. It takes equal weightings in each stock, and the few that pay dividends are counted towards the total. Every three months, we’ll have a look and see how it’s performing compared to the broad markets. Next May 1st we’ll punt this index and start a new one.

Check out some of the trash on that list. Real Networks? Remember the Real Player, that media player from 1997? Apparently that still exists, and is sitting on a whole bunch of cash. There’s Emerson Radio, one of my entries in the 2013 stock picking contest. There are quite a few biotech companies on there with no revenue. There’s an online stockbroker and something that looks like it makes knock-off Apple products. That is one crap index.

And I think it’ll beat the market.

The logic is simple. A company trading at less than cash means the market values the business at nothing. You can’t get any more pessimistic about a stock than that. The market is just killing time until the business runs out of cash and goes bankrupt. There’s little doubt in my mind that some of the stocks in the index will end up going bankrupt. There will also be some gigantic winners. My thought is the winners will more than make up for the losers.

So let’s find out. Is beating the market as easy as running a stock screener and blindly buying companies trading below their cash level? I don’t know, but let’s try it before I get bored.

These are better than the crap you’re currently reading

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That’s Some In Depth Content, Forbes

2013-05-12T21:51:41Z

He’s not very handsome, until you realize he’s worth about $500M.

That’s Steve Forbes, the owner of the Forbes publishing empire, who is unfortunately not my grandfather. He’s pretty active in politics these days, running in the Republican presidential primaries in 1996 and 2000. He lost both times, but not before spending something like 35 million dollars of his own money. Not such a good investment there, huh Stevie?

Recently, while trolling the internet for ~~porn~~ investment ideas, I came across a company called Enduro Royalty Trust. In November 2011, Euduro decided they’d raise some money from some property they had. They created a royalty trust, keeping 60% of the 33M shares issued in the IPO. In exchange for letting them produce on the land, the trust gets 80% of the net profits from any oil or natural gas pulled out of the ground.

The trust has very little in expenses. Over the last year they’ve paid about $1M in expenses compared to $55M in revenue. Oh, if only all businesses could enjoy margins so succulent. That leaves $54M in profit to be paid out to unitholders, which works out to a dividend yield of 9.32% on the $16.52 share price.

The company was paying out 14 or 15 cents a month for a while, but weakness in the natural gas market has dipped the payout to the 12 cent range. They only paid out 7 and 6 cents respectively over February and March, weakness the trust blames on slow payments from the parent company. It’s a little concerning, but whatevs. We’ve got some bigger problems coming up.

But first, let’s see what Steve’s magazine thinks about the trust:

Enduro Royalty Trust NDRO +0.73% (NYSE: NDRO) has been named as a Top 10 dividend paying energy stock, according to Dividend Channel, which published its weekly ”DividendRank” report. The report noted that among energy companies, NDRO shares displayed both attractive valuation metrics and strong profitability metrics. For example, the recent NDRO share price of $15.87 represents a price-to-book ratio of 0.8 and an annual dividend yield of 9.42% — by comparison, the average energy stock in Dividend Channel’s coverage universe yields 4.6% and trades at a price-to-book ratio of 2.7.

Uh, are they really comparing it to the average energy stock? It’s completely different than the average energy stock, since it’s making no efforts to buy new oil supply to replace the stuff they take out of the ground. A royalty trust pays out all of its profits. Most oil companies use a lot of their profits to buy new supply.

The report also cited the strong monthly dividend history at Enduro Royalty Trust, and favorable long-term multi-year growth rates in key fundamental data points.

The strong dividend history? It’s been consistently going down since the latter half of last year, and February and March’s dividends were about half of January’s. It should recover, like I mentioned above, but the trend of randomly cutting dividends should concern investors. Especially since the trust has been in existence for a year and a half and it’s the first time late payments have delayed the dividend.

The annualized dividend paid by Enduro Royalty Trust is $1.494216/share, currently paid in monthly installments, and its most recent dividend ex-date was on 04/26/2013.

Based on 11 to 12 cents a month going forward, that dividend drops to somewhere between $1.32 and $1.44 per share. The trust needs an improvement in energy prices (mostly natural gas prices) to be able to pay 13 or 14 cents a month. That could happen, but a company like Pengrowth will give you a better gain if nat gas prices improve significantly.

But here’s what this Forbes “article” really missed: the depletion of the assets.

Let’s take a look at the value of the assets of the trust.

Q1 2012 – $694.98M
Q2 2012 – $677.05M
Q3 2012 – $660.66M
Q4 2012 – $637.65M
Q1 2013 – $618.30M

Over the past year, the trust has depleted $76.68M worth of reserves. That’s a hair over 11%.

But wait. The company only paid out a 9.32% dividend last year, and that was all their net profits. Oh, and that depletion percentage is going to go up over subsequent years, assuming they continue to deplete assets at the current rate.

I’m assuming the strategy of the trust is to deplete assets faster during times when prices are lower, trying their hardest to maintain the distribution. Once prices go up they’ll make more money and they can slow production somewhat. Still, we’re looking at a maximum of 10 years of reserve life left, and a dividend yield of under 9.5%. Hmm.

This trust boils down to being paid to wait for an increase in natural gas prices. You’ll do a lot better if you invest in a Pengrowth Energy or a Penn West. Both those companies pay equivalent dividends, and you’ve got the potential for greater capital gains when commodity prices bump up.

And assuming you’ve made it this far, this is yet another lesson on the importance of doing research. That Forbes article was a special kind of useless because all it did was take some numbers off a stock screener and present them as information. Screeners can be helpful, but only as preliminary research. You’ve got to do your own heavy lifting.

These are better than the crap you’re currently reading

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Time To Bust Some Financial Myths

2013-05-11T18:47:25Z

I’ve used the Mythbusters picture in a previous post, so allow me to present a picture of Kari Byron this time around, the sexiest of all the Mythbusters. Sorry Adam Savage.

Nice try, science, but even Kari can’t make you sexy.

There are all sorts of financial myths out there. Unfortunately for us, there isn’t an entertaining show to debunk them all while showing gratuitous explosions. You’ll just have to make due with my half-hearted jokes and full-hearted farting. The smells that come from my ass have been known to kill flowers.

On that awkward note, let’s move to the subject du jour. (Ooh, French.) That subject is the lack of understanding of certain financial concepts, even though they’re relatively simple and the underlying topic is relatively understood. This lack of understanding stems from a few things, including not understanding finance of business, letting emotions get in the way of logic, and just being kind of a dumb-dumb. Bonus points to the first person who retorts with “no, you’re a dumb-dumb” in the comments.

Don’t sweat it if you’ve bought into some of these financial myths. Like I said, they’re common, and the important part is to never make them again. Let’s see what they are.

1. Saving For Something While You Still Have Debt

If I had a nickel for every person who has made a version of the following statement, I’d have enough to buy the Pittsburgh Pirates.

“I didn’t take out any additional debt to pay for my vacation, so it’s responsible.”

Allow me to present a very simple net worth statement of most people who make that statement.

Assets: $5,000 – cash

Liabilities $15,000 – student loans

On the surface, they look like they’re in good shape. They’ve got the cash to pay for the vacation (oh lord, it’s always a vacation) and they’re not taking on additional debt to do so. What’s the problem?

The problem is that cash should really be used to pay down the student loans. If it was used responsibly, our imaginary person’s net worth would be down to -$10,000. Instead, the $5,000 gets spent and the student loans are still at -$15,000. In essence, all you’re doing is borrowing to go on vacation.

Pretty much any debt besides a mortgage can be paid off early with only benefits to the borrower. By not paying down the debt with the available cash, you’re paying extra interest. And borrowing to consume is going to destroy wealth every time, no matter how cultured your trip to Southeast Asia makes you.

And then, in a delightful twist, the same people who do stuff like that will loudly proclaim their disapproval of people financing their vacations. The irony amuses me. I know my opinion on this is more unpopular than herpes at an orgy, but you shouldn’t be going on vacation when you have a negative net worth.

2. I’m Debt Free Except…

How often do you hear people proclaim “I’m debt free?! Well, except my student loans/car loan/mortgage/that loan I took to finance my personality transplant.”

This one is more of a pet peeve of mine and not so much a myth, but screw it. Let’s go with it.

Yes, rates are low, and yes, you might have gotten a smokin’ deal on your car loan, but that still represents money you have to pay back. And in most cases, it represents a crapload of money you have to pay back. People basically exclude big loans like that because they’re huge commitments, and thinking about being in debt for another decade or so is the origination of the frowny face emoticon.

But by constantly excluding it in your mental accounting, you’re minimizing the loan’s impact on your finances. And chances are, a big loan has the biggest impact on your finances. I pay $1,500 a month on my mortgage. Don’t you think I’d rather spend that $1,500 on Spice Girls memorabilia? I’m busting my ass paying that bad boy down.

3. I’m in no hurry to repay debt. My interest rate is only ‘x’.

There are two things wrong with this financial myth:

a) Pissing away money that would normally go towards paying down debt is dumb, no matter what the interest rate is.

b) Generally, the rate you’re paying on cheap debt is (AAA rated company debt rate) + (1-2%). It doesn’t matter if your mortgage is at 3% or 7%, all you’re paying is a small premium over what you can get as an investor on the other side of that transaction. You will always pay that because there are 1.8 million banks competing for your business. (Or you’re a dumbass who doesn’t take time to shop around.)

Rather than looking at the interest rate, look at the difference between the interest rate and the risk free return. You will always get a premium return paying down your debt over investing in a risk free asset.

Yeah, I realize leverage exists, and fell free to ignore some of this if you’re being smart with your leverage. And no, buying a Toronto condo is not being smart with leverage.

4. 0% Financing

Interest free financing doesn’t exist for cars. You get either 0% financing or a unspecified amount of cash back. And these days, it’s more likely to be 0.9 or 1.9% financing.

If you buy a $30,000 car and have the option of $1,500 cash back or 0% financing, it’s pretty obvious it’s not being financed at 0%. It’s just being added onto the price of the car.

As for those “don’t pay for a year” store sales, those can sometimes offer actual true 0% financing. Providing you pay it off in the year provided and there’s no application fee, you’re off to enjoy your 0%, thanks to some credit card taking the risk that you’ll take forever to pay the thing off. Considering how I wouldn’t spend that much money on crap at a store anyway, I’d probably just hand over the cash and be done with it. Collecting the interest spread on a couple thousand bucks for a year just doesn’t excite me, especially considering the rewards points I’d get on a credit card if I just used it.

There are probably more financial myths out there, but my Mommy is taking away my laptop because I spread chocolate chip cookie dough all over my naked body and then invited the cat over to eat it. Feel free to add some in the comments.

These are better than the crap you’re currently reading

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Sunday Morning Dump: New Ugly Chair Edition

2013-05-12T16:34:45Z

This is my new chair. Isn’t it the ugliest thing you’ve ever seen?

It’s a La-Z-Boy, and guessing from the color and condition, I’m thinking it’s about 20 years old. It could be older, who knows? There’s probably a tag on the bottom somewhere, but I’d rather not know about what’s hiding under there. I’m sure some old guy picked his nose and smeared his boogers down underneath the cushion somewhere. There’s no telling the carnage hiding in the bowels of the chair. It’s best to pretend everything is kosher. Or, if you’re kind of a dirty bastard like me, you’ll sit on it naked and do your best to defile it with your own body’s filth. If you guys ever wondered why I’m alone all the time, there’s a big hint.

So why did I buy such a disgusting chair? I obviously wanted a chair, partially for me to sit on and partially so I have somewhere for guests to sit. But the main reason? This chair only cost $20. I’m not sure why it was discounted so heavily. Maybe some old dude died on it. But before he died, he emptied his bowels into his Depends. A little escaped out the sides, but his hot granddaughter cleaned it. I will find this hot granddaughter, and invite her to do inappropriate things on her Grandpa’s chair. I will get rejected and probably slapped.

Song I Like And Therefore You Should Too

A little while ago, Mochi (delicious name, btw) featured this song in one of her blog posts. I’m surprised it was good, since she normally listens to weird techno crap.

WHOO LOUD GUITARS ROCKING DRUMS BAD ASS VIDEO OMG! I AM SO JACKED RIGHT NOW! (pounds Red Bull, bench presses 400 pounds)

Simpsons Quote

Kent Brockman: Things aren’t as happy as they used to be down here at the unemployment office. Joblessness is no longer just for philosophy majors. Useful people are starting to feel the pinch.

Gambling Is Fun

I’m watching the IIHF World Hockey Championships as I type this, and they’ve shown about six commercials for the No-No Hair Remover. Are they hoping all the fellas are going to buy these for their ladies? It’s the ~~worst~~ perfect Mother’s Day present.

Oh hey, another 2-1 week last time. That puts me up to 12-3 over the past 5 weeks, which is pretty impressive. I am Gamblor, the gambling GOD. Let’s go with the Toronto Maple Leafs to cover (+1.5 goals) against the Boston Bruins, which as been a pretty fun series to watch. I’m also going with Arizona over the Phillies straight up, and whoever is playing Houston to beat their sorry asses.

Overall record: 106-112-9

A Post You Might Have Missed

Nelson’s archives: Just admit you’re sexually attracted to them. That should be my new slogan.

Most career advice out there is boring and has been repeated about 1.2 million times. I wrote some unconventional tips to get ahead at work a couple of years ago. When you get a promotion, you owe me 60% of your new salary.

Nelson’s So Funny

Frugal tip: instead if having a house, just sleep under an overturned bathtub.

— Nelson Smith (@financialuproar) May 9, 2013

My Twitter feed is funnier than Dane Cook and Daniel Tosh combined. You’re kind of missing out if you’re not following it.

The More You Know

You should all thank Wikipedia for the content by giving them a donation. I won’t because I’m a cheapass who doesn’t care. Nobody loves me.

The Kaiser Tower (German: Kaiserturm) is an observation tower standing on the 478 metre high hill of Armeleuteberg on the territory of the German town of Wernigerode. It was designed by the royal architect of the princes of Stolberg, Paul Kilburger, and financed and erected by a Wernigerode hotelier, Eduard Lührmann, between 29 May and 1 September 1902. The building stone came mainly from the Königsberg Quarry nearSchierke.^[1] In 1992 the tower was thoroughly refurbished and made accessible again.

There are views from the tower over the North Harz as far as the Brocken, the Büchenberg and the Harburg. Especially impressive is the view ofWernigerode Castle.

Heh. They said erected. Also, is everything in Germany named after a type of bun?

Dirty Word In Words With Friends

‘Sex’. It was the best I could find. You people have to give me more to work with here.

My user is ‘nelsmi’ if you want to play and listen to me weep in the chat window.

Babe Loosely Related To Finance

The Chive is giving me a limitless supply of scantily clad hotties. Our collective penises are forever grateful.

The weird hat almost ruins it, and then BAM you get to see her boobs. Still, lose the hat.

Time For Links

Up first is the post of the week, by Krystal over at Someone Owes Me Five Bucks. (Paraphrasing) She points out how you can still travel when you’re older and you’ve got your financial poop together. But you should really click through for my comment. It’s pretty much the best.

Next is the Big Cajun Man, still the only PF blogger named after a spice. Well, at least until someone starts calling themselves Ginger Spice. Anyway, he works in Family Guy in one of his posts, and you all know I’m a sucker for this.

Two of my internet girlfriends came together this week, as Mochi guest posted over at Reach Financial Independence. My word, it was sexy. It was like a blog version of two girls “experimenting in college.” Mochi talks about the pros of actually living in a hotel.

Don’t Quit Your Day Job is keeping the party going, even though they’d probably have a lot more fun if they quit their day jobs. (Also less money. And probably no ladies.) PK has a nice summary of why it’s hard for professional fund managers to beat the market. I’m working on a little experiment inspired by this, and you’ll hopefully see the results soon. That’s what we call a tease in the business.

How about something from my original internet girlfriend, Young and Thrifty? It’s actually not from her, but from one of the JERKS who bought her site in an attempt to keep us apart, Teacher Man. It’s a really good post too, on the fallacies of Canadian parents assuming their kids will get a hockey scholarship from a big U.S. school. Okay fine, Teach, you’re forgiven. Assuming you can get me a date with Y&T.

There’s more? Wow. Martin wrote a nice piece over at the Financial Blogger about some little know factors that are killing your business. It’s mostly laziness that kills my business. Oh, and lust. Somehow.

And finally, wrapping up a good week is JT from Money Mamba, who points out that stock analysts are pretty much worthless. That sound you hear is a analyst crying into a giant pile of money.

Have a good week everyone.

These are better than the crap you’re currently reading

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10 Frugal Ideas You Haven’t Thought Of

2013-05-10T04:48:05Z

There just isn’t enough frugal living advice on this here information superhighway. There’s some stuff out there, but it just isn’t enough for frugal junkies like me. I JUST CAN’T GET ENOUGH FRUGALNESS. IT’S LIKE METH. Sorry, I get excited sometimes when I talk about frugality.

I also find that the frugal tips out there are kinda for pussies, you know? Like the latte factor. Well duh, that’s a pretty easy one, considering coffee tastes like roasted ass. But what about something a little more extreme, like converting your own urine into drinking water? That would be more extreme than that giant ramp thing they have at the X Games, which itself is a pretty extreme event. I’m so extreme I’m gonna start spelling it Xtreme. Don’t try to copy me. You’re not cool enough.

1. Don’t Even Have A House

Have you looked around your house lately? There’s, like, 200 square feet of space at all times that isn’t being used. What a waste, right? I’d suggest living in some sort of root cellar, but even that seems a little wasteful. A tent by the river is a pretty good choice too, assuming you have a long-ass extension cord to power your laptop. HAHAHAHAH just kidding, you don’t have a laptop. You’re a frugal rock star.

2. Reuse Like A Boss

When I shower every third morning, I always get a little bummed out. I’m wasting water – for one reason – and that costs like .042 cents a litre. That adds up to like a dollar a day. But I also get bummed out because I have to use soap and shampoo, and those just get washed down the drain. What a waste, right?

Here’s what I do. I have a big-ass bucket in my bathroom with soap in it. I grab some soap from there, and use it to wash.Then I turn off the water and slowly squeegee it off my rockin’ bod and back into the bucket. Boom. I’m reusing like a motherf’er.

3. Forage Young Man

The woods are full of all sorts of useful things, and for some reason people don’t bother to take advantage of them. There are berries pretty much everywhere. Mushrooms grow wild too, and the squirrels are practically begging to be eaten. I can make a pretty mean salad out of six different types of wild grasses and dandelion stems. Take it over to your friend’s the next time you get invited over for a potluck dinner.

Just kidding. Having friends wouldn’t be very frugal. Solitude, now that’s the ticket.

4. Fun and Games

Everybody needs some off time, especially the frugally minded. But why have things like the internet and TV, since those both cost about $4 per day? NICE TRY, BIG TELECOS. Instead, do what I do. It involves a rock, some old beer cans, and a flat ledge somewhere. I think you know where I’m going with this…

That’s right. You hold the rock and wait for the wind to blow over the beer cans. It is hours of fun.

Also, don’t underrate watching other people have fun. No, I’m not talking about going to a sporting event, since that’ll cost money. Instead go to the local park, alone, and maybe wear a trench coat and some sunglasses. It might get cold and/or sunny, and you’ll want to be prepared.

5. Ridin’ In Style

You need to get around, and you want to look good doing it. Have you thought about sponging rides off people? Nobody likes a mooch, but it’s not like we’re going to let that get in our way.

Instead, get a bike, and ride it everywhere. Yes, even during a blizzard, and even if you can’t even pedal anymore because the snow is so thick and you can’t plow your bike through it. Then, write a blog post about it and claim that it made you a badass, somehow. And do this even though you have a car at home and you’ve got enough money in the bank to retire at, like, 14.

6. Communicate Cheaper

All the kids these days have their iPhones and their Blackberries and whatnot. How’s a frugal person supposed to communicate in a world consumed with expensive text messages and sexting and whatever it is those damn teens do nowadays?

When you’re at a business, ask if you can use their phone. They’re practically obligated to say yes. Feel free to take that opportunity to phone your mother and make sure she isn’t dead. Like we’re going to spring for one of those Life Alert things.

If that doesn’t work, just communicate exclusively through Skype. It’s free, especially if you use someone else’s wifi. If you see someone crouching around the back of a Starbucks using a 2007 laptop to call his sister, come over and say hi!

7. Get Stylin’ Threads

Every frugal type person has already been to the thrift store, but who wants to pay thrift store prices? Not this frugal leader, that’s for sure! $5 for a pair of pants? Hell no. If only there was a cheaper option.

Oh, there is. Have you ever wondered what happens to the clothes people are wearing when they die? They just throw them out. What a waste. Talk to the local undertaker and see if he’ll save the dead guy clothes for you. Here’s hoping Grandpa kicked it at church!

8. Make Extra Cash

Two words: public fountains. There’s gotta be at least $20 in change for you if you’re willing to get your ankles wet.

9. Be A Frugal Stud

Even us frugal rock stars start to get lonely sometimes. If you do start to date, make sure your prospective partner is on the same wavelength as you are. But how?

Maybe start off with a nice romantic walk in the park, stopping for a little drink at a public water fountain. (Pro tip: fill up your reusable water bottle for later.) Since most everyone likes being cooked for, a trip to the grocery store for dinner should be your next step. I’d recommend the three day old bread from the dumpster, but you’re on a date, so live a little. Go for the day old bread on the discount rack instead.

Cap off the evening with a kiss on the cheek, but nothing more. Condoms aren’t very frugal.

10. Have Fun With It

Remember, frugality is supposed to be fun, so use your imagination. You’re gonna need it, because without it you might collapse in a pool of tears and your own urine. That’s not actually urine, it’s just drinking water for later.

That’s it, frugalites. Now I gotta go. Can you believe that one of my neighbors just threw out a perfectly good basketball half? It looks like Nelly has himself a new bowl.

These are better than the crap you’re currently reading

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