Movie review–Wall Street

2015-02-14 image (Wall Street movie)

Happy Valentine’s Day.  Nothing says romance like a movie review of a film about Wall Street.  On the weekends, instead of writing riveting articles about investing, I figured I would lighten it up a little bit, and write reviews of some of my favorite investing related books and movies.  What better way to start than one of my absolute favorite movie about Wall Street—Wall Street?

 

The movie follows Buddy (Charlie Sheen—when he was still likable and before he was living with porn stars) as a young and hungry broker on Wall Street with blue-collar roots, his dad (Martin Sheen—Charlie’s father in real life) being a union mechanic for the airlines.  He lives in a cheap apartment and has a crappy job cold-calling people trying to sell them equally crappy stocks.  He wants to be a player, and he gets his chance when he finagles a meeting with Gordon Gecko (Michael Douglas), a major Wall Street titan.

Buddy almost blows it when he invests Gecko’s money in “dogshit stocks [he] spent all night researching” and only redeems himself when he starts trading him inside information he got from his mechanic father.  Buddy’s fortunes improve as he gets a better office, a hot girlfriend (Daryl Hannah), and a sweet apartment; but these all come at the cost of Buddy descending further into illegality with increasingly brazen acts of insider trading.

Ultimately Gecko, with Buddy by his side, decides to take over Buddy’s dad’s airline with the intention of selling it off piece by piece, something that would lead to Buddy’s dad and all his coworkers losing their jobs.  In a crisis of confidence Buddy defects, turns himself in to the Feds, and then wears a wire to take Gecko down.

 

The movie does a great job of depicting what I imagine life is like on Wall Street.  You have a ton of ambitious kids dying to make it big, vying to become masters of the universe.  So many of my business school friends said the movie did a good job of capturing the spirit-crushing nature of life when you’re just starting out.  Of the thousands that enter the game, only a very few make it, but man do they ever make it.  You’re living a life of penthouse apartments, beach houses, private jets, posh restaurants, and even the occasional blow job from a high-priced call girl (when it was still shocking to show such things, as opposed to today when oral sex makes its rounds on network TV during prime time).

The cast is a real tour de force.  It’s packed with stars who were huge at the time and others who would become huge.  Obviously Michael Douglas, Martin Sheen, and Daryl Hannah were A-listers.  You had Charlie Sheen as a budding star and a young James Spader as well as John McGilney playing a hilariously crass stock broker in one of his first roles.  Plus there were some Hollywood veterans who turned in really great performances like Terrance Stamp and Sylvia Miles, whose cameo as a New York realtor is pitch-perfect.

But the movie totally belongs to Michael Douglas for his portrayal of Gordon Gecko.  It’s far and away the best of the movie and an absolute performance for the ages.  He deservedly won the Academy Award for best actor and his character has come to epitomize all the bad things about Wall Street.

We first meet him cutting deals on a conference call (back when being on a conference call was a pretty big deal), shredding his birthday cards, and checking his blood pressure between drags of a cigarette.  His hair is slicked back, he wears suspenders, orders off the menu, and of course gets around in either a limousine or a private jet.  I mean, the man is cutting deals on Hong Kong gold before the sun rises with a sweet cell phone the size of a brick.  He’s a total stud—he knows it and you know it.

2015-02-14 image (Douglas cell phone)

About halfway through the movie, as he’s launching his hostile takeover of Teldar Paper, he delivers his best line: “Greed is good” (2:39 is the money shot).  It’s a bit of a rip off of a speech that Ivan Boskey gave in real-life for a commencement address at the University of California-Berkeley, but Gekko’s version is amazing none-the-less.

As films go, this one has taken on a bit of cult status.  It wasn’t one of the top 10 highest grossing films of 1987 (Three Men and a Baby was #1, so there you go), but it has probably had some of the most staying power.  When people think of what’s wrong with Wall Street, many go to this movie, Douglas’s role, and even that particular line: “Greed is good.”  I totally recommend this movie and give it four stocky foxes.

4 stocky foxes (for movies)

Week in review (13-Feb-2015)

“If stocks didn’t go up and down, which way would they go?”

The sheer volume of information related to the stock market is truly staggering.  Everyday newspapers like the Wall Street Journal, Financial Times, and many others fill countless pages of copy on this topic.  Similarly, cable channels like CNBC, Bloomberg, and many others spend countless hours with their talking heads telling viewers why the stock market acted the way it did today and what it will do tomorrow.

It’s easy to get overwhelmed by all of this.  You don’t know whether you should be doubling down on Chinese internet stocks or selling everything because Russia is about to start World War III.  As a long-term investor, I try to stay above the fray and keep to my buy-and-hold strategy.  However, it’s always good, and maybe even a little fun, to look at the big news stories of the week and see if they really do justify the crazy movements of the stock market.  I think what we’ll see is that the news events are way too small to justify such large swings in the stock market.  Let’s find out.

 

2015-02-13 weekly review image

Every Friday I am going to write a blog giving my take on the week.  I’ll always show the chart above, so let me orient you on it really quickly.  This shows the year-to-date returns for ETFs which represent the US stocks (VTI) in red, the European stocks (VGK) in blue, the Pacific Rim stocks (VPL) in green, and emerging market stocks (VEA) in orange.  So looking at the US stocks, they started the week down 1% from where they started the year, and over the course of the week they increased about 2% to end the week up 1% from where they started the year.

The biggest stories this week were: Apple worth over $700b (Monday), Tesla misses earnings (Tuesday), Greek bonds (Wednesday), Ukraine truce (Friday).  These stories drove US and international stocks up about 2%.

 

Apple worth over $700 billion

This week Apple’s stock rose so that the entire company is worth $700 billion, a truly astounding number and an amazing success story.  But this is more effect than cause.  A couple weeks back Apple announced on its earnings call that it sold enough iPhones that every man, woman, and child in the world bought one (I may have exaggerated some figures).  That’s the real story; Apple’s business is incredibly strong, and I think that speaks to the overall strength of the US economy—people are “splurging” on electronic toys and that must mean people are feeling good.

As a result of that amazing earnings, its market capitalization has risen to over $700 billion, but that’s really old news, good news for sure but old news.

 

Tesla earnings miss

Tesla is a media darling.  It has super-cool and sexy products and its CEO, Elon Musk, is a super-charismatic visionary who has captivated the world.  One day its technology might become the world standard, but that day is not today and it won’t be tomorrow or next month or next year.

So when Tesla only grows 45% and sells a mere 120 cars in China, what does it really matter?  For every car that Tesla sells, GM and Ford sell thousands; while Tesla is an amazing story it is such a drop in the bucket compared to the giants of the auto industry.  One day I hope that changes and my two cubs won’t need their driver’s licenses, but today when stories about Tesla move the market it just seems like the Texas saying “big hat, few cattle”.

 

Greek bonds

Have you ever seen a car wreck in slow motion?  That’s what the Greek bond crisis seems like, and it’s going to go on and on and on.

Eventually, one of three things will happen:

  1. The Germans will force austerity and reform measures on the Greeks which will continue to depress their economy. Given that Alexis Tsipras was elected prime minster on the platform that he wouldn’t allow this, this doesn’t seem likely to happen in the short-term.
  2. The Germans will talk a big game but eventually give more relaxed terms to the Greek bailout package. This will kick the can down the road, and the Greeks will continue to be dependent upon the international community (kind of like the 26 year old still living at home and sponging off his parents).
  3. Germany and Greece won’t agree, Greece will default on its debt package, and they will ultimately leave the Eurozone. Germany will take its ball and go home.

At the beginning of the week it was #1, and then yesterday it was #2.  It will flip flop about 90 more times before they kick the can down the road—Greece will get some relief but it won’t fundamentally change their non-competitive economy.  Ultimately I think #3 is what will happen, but not for a few more years as they tear this bandage off excruciatingly slowly.  And through it all, who cares?  The world is getting super worked up over a country that has 11 million people with an economy about the size of Connecticut’s.

 

Ukraine-Russia cease-fire

A cease-fire was brokered, and for the investing community that seems like really good news.  The Russian economy is a mess right now: mostly because of the low oil prices, but also because of the sanctions the world has placed on them.  Also, wars are expensive, really expensive.  Add all that up and there is a serious drag on their economy, an economy by the way that is about 15 times larger than Greece’s (and you know the tizzy everyone is in over the Greeks).

Hopefully this cease-fire will stick, but I suspect there will be a few false starts.  However, if this cease-fire is the green shoots of the end of this conflict, then that will be really great for the stock market.

 

So there you have it—markets are up about 2% across the board for the week on mostly good news with a couple pieces of bad news which really aren’t that big of a deal.  I hope you have a great weekend and pump some money into the economy this Valentine’s Day via Hershey kisses and 1-800-Flowers.

How to get started saving for retirement

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So many people I talk to love the idea of investing for retirement and know they need to be doing it, but they just don’t know how to start the journey.  As a result, they don’t do anything, months and then years go by and they’re still at square one, but now they’re pissed because they missed out on the red-hot stock market that increased 50% over the past few years.  So here is what I would do in order of “Stockiness” (stockiness is a word I just made up that loosely translates to investing wisely).

 

401k or 403b

If you work for a company that offers a 401k or a 403b, that is probably the best and easiest place to start investing.  First, most companies have it set up so it’s pretty easy to sign up and get started.  Also, since they deduct the money out of your paycheck, it might be easier for some people to save the money “without having to do anything”.  Plus there’s the benefit that most of these plans don’t have any minimum amounts you have to start an account with, so you can sign up, have then deduct your 4% or 10% or whatever, and you’re set.

Of course we’ve saved the best for last—there are two MAJOR advantages of 401k and 403b accounts that really help you boost your nestegg.  First, both are tax-deferred (much more on this in a later post) which means that you don’t get taxed on your contributions.  So when you put $10,000 into your 401k this year, you don’t pay taxes on that money; had you not used your 401k then you would be taxed at normal income rates which could go all the way up to 40% or even higher, depending on what your situation is—that’s $4000 right there.  Certainly, you’ll have to pay taxes when you withdraw the money in retirement but it’s pretty likely you’ll be paying a much lower tax rate then, compared to the tax rate you’re paying while you’re working.

The other MAJOR advantage of these accounts is that most companies offer some type of matching.  It’s typically something like they will match $0.50 for every dollar you put into your 401k up to 6% of your salary.  Every company is different on their match but there is one thing they all have in common—they’re giving you free money if you’re willing to take it.  Like so many things in investing, over time this matching can add up to a lot— tens or even hundreds of thousands of dollars for this little jewel.

As with all things, if it seems too good to be true, you should probably read the fine print.  There are a lot of rules associated with 401k and 403b accounts (as I said in the disclaimer, I’m not an expert here).  The big one is when you can withdraw the money.  The government allows those great tax advantages at the cost of limiting your ability to get at the money; the idea is to have you save that money for your retirement, not your next car or next Berkin handbag (which can cost as much as a car—totally blew me away when Foxy Lady told me that).  If you’re in a pinch you can get the money sooner, but it is a major pain in the butt, and often times there are penalties.  So the general rule is: put money in your 401k or 403b that you won’t need until your late 50s.

 

Individual Retirement Accounts (IRAs)

If your job doesn’t offer a 401k or 403b, the next best thing is probably an IRA.  They are similar to 401k accounts in that they have tax advantages that can really add up over time, so that is one of the MAJOR advantages.  Unfortunately, they don’t have the matching feature which is a bummer.  Also, similar to 401k and 403b accounts, these are meant for retirement savings (and have similar penalties for early withdrawal) so it’s best to put money here that you don’t plan on needing until your 50s or 60s.

Unlike 401k and 403b accounts, you have to set these up on your own.  It’s not difficult, but it certainly isn’t as easy as if you just check a box at work.  The first thing you’ll need to do is pick between a Roth IRA or a traditional IRA.  There’s a ton of debate on which is better, but as a general rule I would go with a traditional IRA.  Ironically, when I made that decision for myself 15 years ago I went with a Roth IRA and I think I made the wrong decision.

Then you’ll need to set up an account with Vanguard or Fidelity or one of a hundred other firms.  Another unfortunate feature of IRAs compared to 401k accounts is that they tend to have a minimum amount required to open an account.  For Vanguard it tends to be about $3000, so that may take a little while to gather before you can get started, but it’s still definitely worth the effort.

But there is a nice advantage that IRAs have over 401k accounts—you have many more investment options.  With a 401k you are limited to the mutual funds that the company has set up.  My experience with 401k accounts is that you have a good variety—bond funds, domestic stock funds, international stock funds, target retirement funds—but you may only have 10 or so choices.  With an IRA you can choose from almost any mutual fund there is (just to put that in perspective, Vanguard has 100 funds to choose from).

 

Brokerage account

If neither of the above options work for you (and that would seem really odd that they wouldn’t, but I guess you have your reasons), then you can open a regular brokerage account with Vanguard or Fidelity or others.  Here you could invest in all the same mutual funds that are available to you with IRA accounts.

As you’d expect, the major drawback on these is that they don’t have the tax advantages of the 401k, 403b, or IRA accounts and that can be a pretty huge deal.  On the other hand, they do not have any of the penalties associated with early withdraws, so that might be something attractive depending on what you have on the time horizon.

 

So there you go.  Investing is a long journey, but as some poet who’s been deal a long time said, “Every journey begins with a first step.”  So the first step is opening an account so you can start investing.

 

How did you get started investing?  We’d love to hear your story.

Greetings from the Stocky Fox

2015-02-11 image (sitting on a beach)

Why aren’t you a millionaire?  Why aren’t you retired, reading this blog while sipping a drink with a paper umbrella in the glass right now?  You read these crazy statistics that 80% of households have less than $10,000 saved and 90%+ of people don’t think they’ll ever be able to retire, so I guess that means they’re just planning on working until the day they die.  Thanks, but no thanks.

This is a blog about investing.  This is a blog about how I have wisely invested the family’s savings to become a millionaire before my 34th birthday.  This blog is about how I take all that money that Wall Street is dying to give out, while avoiding all the sucker bets that Wall Street uses to try to take it all back.  This is a blog about getting a ticket on the Financial Freedom Express.  The ride is great and the umbrella drinks are tasty, so I’ll see you there.

 

Hello, nice to meet you

My name is Stocky Fox.  I am 37 years old (that’s incredibly old for a fox whose average lifespan is only about 5 years, by the way).  Mrs. Fox and I have a 3-year old cub, ‘Lil Fox, and second, Mini Fox, who just joined us about four months ago.

I am a self-diagnosed personal-finance hobbiest.  Some people like building model airplanes or collecting stamps, some enjoy running marathons (never got that one—foxes are really fast over short distances, but we don’t have the stamina) or shopping for shoes.  I enjoy managing our family’s finances: setting up the accounts, determining which investments to choose, tracking the results and comparing them to the market benchmarks, creating graphs that show the Fox family’s progress towards its financial goals, and so on.  As hobbies go, I think it’s actually a pretty constructive one in that doing this well will help you achieve financial security and independence.  Read that line again . . . if you invest wisely and minimize the most common investing mistakes, you will take a major step towards financial security and independence.  That is Mr Fox’s goal (for really important statements I revert to third person), and maybe it’s yours too.

Mrs Fox and I met in business school, we have typical office jobs, and live in the suburbs of Los Angeles.  Like a lot of you out there, we want to have a secure future for ourselves and our little ones.  Since we don’t make millions of dollars each year, we know that saving our money and then investing it wisely is paramount to achieving those goals.  Over the past 15 years of our adult working lives, we have saved diligently and in my opinion we have invested those savings wisely.  What’s our end goal?  We want to retire while we’re still young so we can spend more time with our little cubs as they grow up, we want to buy a sailboat and cruise around the world, we want to ensure that our cubs can go to the absolute best university their grades and drive can get them in to, we want to go into our golden years without financial constraints or worries.

I started saving money when I was in college, and I immediately started investing that money in the stock market.  I continued to save more, and after a few years I got a wonderful surprise: The money I made on my investments each year was more than I was saving each year.  I had caught the wave and was starting to ride it in.  Today we have a tidy little nestegg that will keep us flush well into our golden years.

 

Why is this blog worth your time?

Successfully investing isn’t hard and it doesn’t require a ton of brains (as evidenced by me), but it doesn’t come naturally for everyone.  Some of the smartest and most professionally successful people I know aren’t good financial planners.  A lot don’t have the time to dedicate to investing that I choose to.  Most don’t enjoy it near as much as I do (and they are probably less socially awkward than I am because of it).  Others are brilliant in many areas but investing doesn’t really “click” for them.

Maybe one of those descriptions applies to you.  If so, I hope this blog helps.  I’ll use this blog to show you how I stroll through the forest of Wall Street, gathering all the berries, salmon, and honeycomb my family could possibly want.  I’ll also show you how I avoided all the bear traps and enraged bee hives that could have really put a crimp on my plans.  I’ll make no promises (see disclosure), but if you read this blog and take the ideas into consideration as you make your own financial plans, I believe that you will be well on your way to catching the Financial Freedom Express.

All aboard.