Think Differently

PressingPausers have proven to have little interest in personal finance. Correction. PressingPausers have proven to have little interest in my thoughts on personal finance. Big dif. So why do I persist? Idk.

Just like getting dressed in the morning while on sabbatical, the fact that NO ONE will read this is liberating. Whatever shorts and t-shirt I left splayed on the floor last night are good, not many peeps are going to see me anyways as I write a blog post NO ONE will read. If a blog post falls in the woods. . .

Classic investing advice is to keep investing expenses to a bare minimum; determine what balance of stock, bonds, and cash will enable you to sleep well at night; and keep trading to a bare minimum.

In the US, investors currently have 56% of their assets invested in stocks or more than 10 percentage points higher than its historical average of 45.3%. At the top of the bull market in 2007, it stood at 56.8%. This has a lot of analysts worried that a correction is coming.

Another investing maxim of increasing popularity is to stop trying to outsmart the market. Instead, as Kendrick Lamar advises, “Be humble!” His next vid will prolly be about investing in passive index funds like this. The chorus. . .”Be passive!”

Another oft-repeated investing maxim is never invest more than 5% of your net worth in any individual stock because they’re far too volatile. A mutual fund or exchange traded fund is a basket of hundreds or thousands of individual stocks that go up and down at different times, thus creating a smoother, steadier, long term increase in value.

But damn is AAPL en fuego. Check this missive from a Vanguard forum of knowledgeable investors I’ve taken to reading recently. Wait a minute. That last sentence presumed you’re reading this, which you’re not, so note to self—revise that. This missive from a Vanguard forum of knowledgeable investors has me thinking about chucking conventional investing wisdom and improvising like #3.

“Hi—
Long time lurker first time poster. Thank you to all who have contributed to my education here, absolutely invaluable.
I’m writing about my mother and father in law’s finances, which I am slowly taking over at their request.
FINANCIAL PICTURE
Savings
$425k in various super low interest checking / savings accounts
Investments at Fidelity (unlikely to change brokerages):
Rollover IRA: $675k of which
* 86.8% AAPL he’s a lifelong Apple fanboy, bought $11,500 worth way back when, which is now $575k.”

Hindsight is 20-20, but if I was my daughters age again, for every $2 dollars of savings I could set aside, I’d put $1 in a super safe certificate of deposit and the other in AAPL. And then rebalance annually and pay 15 or 20% on the capital gains. As the aforementioned anecdote intimates, I would’ve done really, really well adhering to this “barbell” plan.

But this way of thinking suggests I’m suffering from an advanced case of “optimism bias” which causes a person to believe that they are at a lesser risk of experiencing a negative event compared to others. Note to self—AAPL can’t continue its recent run. VTI is a much safer, wiser, long-term instrument for building wealth. VTI is also long overdue for a serious correction, or to use the fancy pants mathematical phrase, a regression towards the mean. It’s as certain as the Mariner’s August playoff fade.

Sometime soon, the half of the barbell holding certificates of deposit earning 3-4% is going to bring great comfort.

 

 

 

 

 

Yet Another Case Study of Mindless Personal Technology Hype

Brought you by Geoffrey A. Fowler of the rapidly deteriorating  Wall Street Journal.

Is this dude on the AAPL payroll? He writes:

Bluetooth earphones are a thing now, so you might as well buy the best.

That short, vapid sentence speaks volumes about “journalism” in the era of consumerism. For the sake of fitting in, I certainly hope you join the Wireless Headphone Club this Christmas season. Nothing worse than being on the outside looking in. Cue the advert with baby Jesus in the crib with AirPods dangling from his tiny ears.

GAF continues:

Totally untethered headphones are a delight to use, especially when you’re on the move. No more untangling the spaghetti at the bottom of your bag. No more slap slap slap on your neck when you jog. No more being tethered to your phone like a marionette.

Maybe I just haven’t realized it. How long have my tangled wired headphones been keeping me from being my best version of myself? I won’t be joining the Wireless Headphone Club yet because I’m perfectly content running with an iPod Nano.* Hey GAF, News Alert: When running, I completely forget about my Nano and headphones. Someone at the Journal slap GAF for his “slap, slap, slap” hyperbole.

aclk.jpg

* I’m waiting until your AirPods purchases drive my AAPL stock up $159. :)

The iWeek Ahead

iMiss the days when everyone in and around Apple was afraid to death of Steve Jobs and what he would do if there was a leak. Far less was known prior to major pressers like this Tuesdays.

Predictions. More incremental improvements to the world’s best smart phone. Larger, sharper, more durable screens; faster processors; more memory, improved battery life. iPhone 6 users will soon be paying for all sorts of things by quickly swiping their phones.

An iWatch that keeps time more accurately than any previous watch ever. All of your social media on your wrist all of the time. Steadily declining marketshare for the top-selling personal fitness and health devices. Wireless charging.

Analysts will complain the products cost too much. On Friday, AAPL shareholders like me will have less money that we do right now.

People will find the money for both products. Fourth quarter 2014 and first quarter 2015 sales will set new records and exceed almost everyone’s expectations. The stock will recover and sometime soon the Good Wife and I will once again start eating at Vic’s on Saturday nights.

I’ll buy everything Tim offers for sale Tuesday. Maybe even for myself. If I go against type and follow through on that this time, my friends, a resilient bunch, will quickly find new things about me to ridicule. Like the humble blog. Their favorite line, which they find endlessly entertaining, “You have a blog?!”

The products will not improve the quality of my life. I will not free up more time or experience more joy. I will not be more insightful. I will not write or teach any better. I will not listen more patiently or find more humor in things. I will not be more kind or generous. I will not display greater appreciation for my health or the natural world.

Take this prediction to the bank. No combination of sleek and shiny iProducts will make me a better person or improve the quality of my iLife. Make like Stuart Smalley and repeat that mantra in the mirror this week and let the iHype pass over you.

Why I’m Not Selling Apple

A friend, who has made it a point to resist Apple’s takeover of the personal tech world, emailed yesterday. The subject heading was “Time to Sell”. There was a link to an “Apple’s in decline” article and a follow up with an ominous excerpt. Full disclosure: this post doesn’t relate closely enough to the blog’s stated purpose, but I have to do something to stem the tide of anti-Apple email gloating.

Apple investors have to expect blowback when the stock slides. It just comes with the territory. Anti-Apples get more and more annoyed with every $100 rise in its share price. There’s probably just a touch of envy involved.

Late summer Apple hit $705, today it closed at $450. So the haters are slapping themselves on their backs in glee.

My email “friend” got his Masters in Business Administration at the University of Washington, not the Anderson School, so some remediation is in order.

Principle 1) Buy low and sell high. Apple’s on sale. Compared to the recent high, $255 off per share. In the next year or two, is it more likely to fall another $250 to $200 or rise $250 to $700? I’m betting on the later.

Principle 2) Never invest more than 5% of your total portfolio in a single stock. Apple’s sell-off hasn’t bothered me as much as UCLA’s inability to rebound the basketball because it’s 1/20th of the pie. Imagine having 20 children, one who goes off the rails. By the time you notice, she’d be halfway back to the straight and narrow (especially if she produced a less expensive iPhone for China).

Principle 3) When it comes to equities, be sure to take a medium or long-term perspective. If, for any reason, you might need to cash in your stock investments in a few months or years, avoid stocks, especially those of individual companies. I’m not selling because I don’t need to. I can wait on that 5% of my portfolio. Indefinitely really. That’s why I rolled a portion of my AAPL investment into a family charitable fund mid-summer. When it comes to our equity investments, VTI is the apple pie, VEU is the scoop of vanilla ice cream, and AAPL is the whip cream.

Principle 4) Have realistic expectations. In other words, don’t be ahistorical. Understand the “law of large numbers” and don’t get overly excited on run-ups. What did a lot of investors do in Las Vegas, California, and Florida when real estate prices exploded in the early 2000’s? They extrapolated. “Oh, I can easily earn 20% next year too.” After yesterday’s sell-off of $63, Apple is up 8.13% over twelve months. That’s only disappointing if you assumed it would return 30% annually. Maybe it’s turning into a single’s hitter. Which is fine for me because I’m a Mariners fan.

 

 

Apple Cares About Profit Margins Not Its Chinese Workers

My conclusion after carefully reading Charles Duhigg’s and David Babroz’s NYT article, “In China, Human Costs are Built Into an iPad“. Major props to Duhigg and Barboz for the thoroughly researched, fair, convincing, damning description of Apple’s negligent, laissez faire approach to working conditions in its suppliers’ factories in places like Chengdu, China where I once lived for a few months and toured the largest television factory in the world.

In fairness to Apple, I should read Tim Cook’s “we care about every worker in our supply chain” email to Apple employees, but Duhigg’s and Babroz’s analysis convinced me that Cook’s email is most likely hollow, public relations spin.

Apple recently reported their 2011 fourth quarter results—$13.06b in profit on $46.3b in sales. The sales number is remarkable, but given industry norms, the profit margin even more so. I’ll return to it later. As a result of the record quarter, my AAPL holdings increased in value way more than the cost of the MacBook Air I bought the GalPal for Christmas and the iPad 3 I’ll be buying myself in March. I divulge that to point out I am complicit in Apple’s pernicious business practices.

I have a responsibility to carefully consider Apple’s relationship with its suppliers in China because I help create demand for Apple products. I also think of myself as a global citizen with a social conscience, I have praised the company in previous posts, and I own individual shares of AAPL both directly and through stock index ETFs.

Some key excerpts from Duhigg’s and Barboz’s article:

“We’ve known about labor abuses in some factories for four years, and they’re still going on,” said one former Apple executive who, like others, spoke on the condition of anonymity because of confidentiality agreements. “Why? Because the system works for us. Suppliers would change everything tomorrow if Apple told them they didn’t have another choice.”

Foxconn is one of the few manufacturers in the world with the scale to build sufficient numbers of iPhones and iPads. So Apple is “not going to leave Foxconn and they’re not going to leave China,” said Heather White, a research fellow at Harvard and a former member of the Monitoring International Labor Standards committee at the National Academy of Sciences. “There’s a lot of rationalization.”

Granted, China is still a developing country with a serious urban/rural imbalance. Young people are choosing, of their own free will, to migrate to its cities to work in factory jobs that require, by our standards, long hours in tough conditions. Even when adjusting for where China is in its development, Apple is failing its Chinese workers who had no idea they’d have to suffer grievous injury and in some cases death as a result of toxic chemicals, aluminum dust, and large-scale explosions.

Three quarters through the article I sadly concluded Apple is to technology as Walmart is to retail—so large and influential that it can dictate conditions to suppliers. Apple says to suppliers, “Get us this product, tomorrow, at this price.” In order to make money, the supplier has to figure out how to do things more efficiently or cheaper, which often means cutting corners on implementing Apple’s ineffectual code of conduct. Then, Apple pays suppliers less each year and looks the other way when they fail to implement the code of conduct.

What makes this unconscionable is Apple’s unprecedented profit margins. If Apple users and shareholders like me take the baton from Duhigg and Babroz and put serious pressure on Apple to truly enforce their code of conduct, they could not only match the global labor practices of Intel, H.P., and the ubiquitous swoosh, they could raise the bar for every other multinational operating in China.

More key excerpts:

“If you see the same pattern of problems, year after year, that means the company’s ignoring the issue rather than solving it,” said one former Apple executive with firsthand knowledge of the supplier responsibility group. “Noncompliance is tolerated, as long as the suppliers promise to try harder next time. If we meant business, core violations would disappear.”

“You can set all the rules you want, but they’re meaningless if you don’t give suppliers enough profit to treat workers well,” said one former Apple executive with firsthand knowledge of the supplier responsibility group. “If you squeeze margins, you’re forcing them to cut safety.”

“It is gross negligence, after an explosion occurs, not to realize that every factory should be inspected,” said Nicholas Ashford, the occupational safety expert, who is now at the Massachusetts Institute of Technology. “If it were terribly difficult to deal with aluminum dust, I would understand. But do you know how easy dust is to control? It’s called ventilation. We solved this problem over a century ago.”

But ultimately, say former Apple executives, there are few real outside pressures for change. Apple is one of the most admired brands.

People like Ms. White of Harvard say that until consumers demand better conditions in overseas factories — as they did for companies like Nike and Gap, which today have overhauled conditions among suppliers — or regulators act, there is little impetus for radical change. Some Apple insiders agree.

Will Dughizz’s and Babroz’s reporting create a groundswell of pressure that forces Apple to care—even in a Chinese context—about the quality of life of their Chinese workers? “Right now,” Harvard’s White says, “customers care more about a new iPhone than working conditions in China.

Near the end of the article a “current Apple executive” is quoted as saying, “You can either manufacture in comfortable, worker-friendly factories, or you can reinvent the product every year, and make it better and faster and cheaper, which requires factories that seem harsh by American standards.” That’s flat out wrong. Given Apple’s unprecedented profit margins, here’s what the exec should have said, “You can manufacture in comfortable, worker-friendly factories, reinvent the product every year, and make it better and faster and cheaper in factories that supersede existing Chinese standards if stockholders—especially my Apple execs and me—are willing to accept smaller profit margins that are more typical for the industry.”

I’m not ready to sell all my shares and boycott the products until work conditions in China truly improve, but I am willing to accept slower growth in AAPL’s share price as a result of smaller profit margins.

iPad 2

I’m an AAPL investor and admitted fanboy, but the most concise and sober review I heard Wednesday (didn’t catch the BBC tech reporter’s name) went as follows:

“Not that impressed. It’s faster, but no-one has complained about the speed. It’s thinner, but no one has complained it’s too thick. It takes pictures, but cell phones have been doing that for years. It comes in black and white.”

The most obvious sign it’s an incremental improvement—some of the most closely listened to reviewers are most impressed with the “Smart Cover”.

AAPL marketing is a sight to behold though. If they wanted to, they could get me elected president of the U.S. They make it sound as if we should measure time in pre and post-iPad terms. You think it’s 2011 A.D. when in actuality it’s 2 iPad.

I’m a little hurt they haven’t capitalized on my story yet. My iPad use varies depending upon whether I’m reading an e-book on it and or not. Normally, when I’m not, I use it between 5:30 and 5:35a.m. to check the weather, local news headlines, blog stats, and email before popping in the contacts and pounding the pavement.

Slick and convenient. Hardly life changing.

 

Tech Notes

Personal record for links in this post.

By the time you read this, I hope Steve Jobs will have changed personal computing again with Apple’s long awaited tablet. I invest in vanilla bond and stock index funds, except for one stock, AAPL. Wednesday night, I expect the value of my AAPL shares to be flat or slightly down due to the Obama-effect, unrealistic, unmeetable expectations. More importantly, I’m hoping the tablet makes reading even easier and more enjoyable, makes flying more tolerable (via a mobile library or t.v./movie viewing), is as simple as a toaster to use, and enables me to reduce my personal tech footprint. Bonus points if it drags me into the 21st Century cell-phoning, texting world.

I recently purchased a desktop computer which, four or five years ago, I swore I’d never do again. At that time, I didn’t factor in my worsening vision. One complication is keeping the university’s laptop and my personal desktop in sync. Apple’s MobileMe program was okay, but I didn’t want to pay $100/year for it. So I resorted to thumbdriving, which is a hassle. Then I read this. Love it. Hard to believe the Late Adaptor is cloud computing. Check it out if you’re digital life is out of sync.

I also joined the DVR-world recently, Tivo more specifically. What was I thinking trying to watch t.v. without Netflix and Tivo? To quote my previously brilliant/illuminating review, “love it.” One unintended benefit. Fourteen is watching a lot more t.v. That translates into worse grades, which translates into a less expensive college. Genius. Sometimes I amaze myself.

The New York Times has announced plans to charge nonsubscribers for some content in about a year. Others have tried this unsuccessfully and I predict this effort will fail too. There’s simply too much competition, meaning substitutes. Tonight in the tub I’ll read an article from GQ and the Atlantic Monthly. That reminds me, I also hope the tablet is water proof.

Lastly, if you fancy yourself a runner, swimmer, or cyclist, check this blog post out. The triathlete author is a blogging and technology savant.