May 2015 – The Stocky Fox

Mint versus Quicken

May 28, 2015August 18, 2015 Stocky 1 Comment

“You can’t hit what you can’t see” –Walter Johnson, major league pitcher from 1910s

As you take more control of your personal finances, there will come a time when you need to start tracking it somehow. Maybe you’ll be hyper-obsessive like I am and look at it multiple times a day (which objectively is stupid since the numbers don’t change that fast, but I do it anyway). Or maybe you’ll want to see what things look like every week or every month to make sure you are on track. Either way, you’ll need some way to track your finances.

There are two major options: a program you purchase and install on your computer like Quicken, or an internet website that consolidates your online accounts like Mint. For the longest time I was a Quicken devotee (and before that I used Microsoft Money), and then I recently switched to Mint. This post is going to be looking at the pros and cons of each, Dr Jack-style, to help you pick the one that will work best for you.

TRACKING SPENDING: Both do this fairly well. You can download your bank and credit card activity, and both do a somewhat decent job classifying the expenses into the different categories. I think this is a bit of “the price of admission” that you should absolutely expect.

There is one feature that I really liked about Quicken that I don’t get with Mint—the ability to split expenses. When I go to Costco and spend $300, I can only use a single category in Mint, so I use “groceries”. However, in real life, that $300 was split into $150 for groceries, $30 for pet food, $70 for Foxy Lady’s contacts, and $50 for some pool toys for Lil’ and Mini. In Quicken I can split that $300 expense into those different categories which is really nice when you want to compare your spending to your budget.

[EDITOR’S NOTE: After posting this, a reader named Ashleigh mentioned that you could indeed split transactions in Mint. It took some tinkering around but I figured out how to do it. She was indeed correct. That said, I must say that it’s not the most user-friendly or intuitive process. But hey, it’s free so I can’t complain, even though I just did.]

Advantage: Slight edge to Quicken

PROJECTING FUTURE SPENDING: This is a really nice feature in Quicken that you don’t have in Mint. When you look at the cash flow of your checking account, it’s nice to look into the future to make sure that your balance doesn’t fall below a certain level. So you might get a paycheck or two, but then you’ll have your mortgage, a credit card payment, and a couple bills, all of which are hitting on different dates. That’s a lot of moving parts.

If you’re like me and you try to keep your checking account’s balance fairly low, freeing up the extra money to invest where you can get a higher return, then you need to be a little more precise. This is probably the single biggest feature that I miss by switching from Quicken to Mint.

Advantage: Quicken

ACCURACY: With Mint the website downloads your transactions and then does its thing. Most of the time this works well but sometimes it doesn’t work and the results look goofy. Look at the picture from Mint for one of my investments. Notice how it thinks that I invested $321.69 and that has increased $26,747. While I would like to think that I am that brilliant of an investor, I can assure you I’m not. For some reason the download had a bug in it. With Quicken, you can actually go into the file and manually change things to take care of stuff like that.

Advantage: Quicken

NON-BANK STUFF: A lot of people have financial “stuff” going on that isn’t with your bank or brokerage account. Sometimes it might be off-the-book loans like maybe your parents helped with the down payment on your house. With us, I have stock options that aren’t in an account compatible with Mint, so I don’t have visibility to them. With Mint, if you can’t download them they don’t exist. Obviously that creates a bit of a problem if you want to take these into account.

With Quicken if you have stuff like that you can manually create accounts and transactions. It’s not ideal and certainly not as easy as downloading them, but sometimes something is better than nothing.

Advantage: Quicken

ANALYSIS: Quicken has a lot more robust offering of analyses that you can use, including a host of reports that you can customize to show whatever you want. I used these to track how my spending was doing to my budget as well as a report that showed how my investments were doing. Mint has some useful reports, but it isn’t anything near as robust as what Quicken has.

However, Quicken does have a bit of overkill. There are all kinds of reports that it offered that I didn’t use, or even worse used and thought gave bad advice. Quicken had a retirement projection tool that I played around with. It said that at 65 I would have something like $5 million, but that I would run out of money by 90. Ludicrous. I didn’t use that tool after that.

Advantage: Quicken

CONNECTIVITY: This is one of the areas where Mint really shines. Its whole platform is based on smooth, seamless connectivity with all your accounts. Everything is designed to make this easy—from initially linking your accounts to Mint, to updating them. I love Mama and Papa Lynx (my in-laws) to death, but sometimes they aren’t the most technologically savvy. They got everything up and running in Mint without any problems, so you know it’s pretty user-friendly.

This is the main reason that I don’t use Quicken anymore. I kept having problems where my accounts wouldn’t update. Sometimes it was my accounts would change (like when my Vanguard account got large enough to go to their Admiral shares), other times it would be a cookie or some other technical thing on my browser that I don’t really understand. No matter, it would be a royal pain in the butt. I’d have one of three options, none of which were good: I could spend time with their technical support, I could manually enter the transactions, or I could just not update (what I ended up doing). We live in a technical age, so to have this not work really well is a problem.

Advantage: Big advantage to Mint

TECHNICAL SUPPORT: As you would expect with a free site on the internet, Mint doesn’t offer you a lot of help if things go wrong or you screw something up. If you click on the “get help” link it sends you to a page that recommends you try to find the answer to your problem in their community. So basically you’re hoping that you can find someone who had the same problem you did and wrote about it. That’s kind of an “f-you”, isn’t it? I’ve struggled a couple times and found my answers by googling for it, and it worked but it took a bit of effort.

Quicken on the other hand has a bonafide help center. You can chat with a real person who will try to help you. This is what I used when I had connectivity issues. By and large, they’re pretty good and can solve most problems with a minimum of hassle (although it’s probably a minimum 30-minute time commitment). Maybe I’m stuck in the past, but I do like it when I can talk (either over the phone or via chat) to a live person.

Advantage: Quicken

INTEGRATION TO OTHER PRODUCTS: Quicken allows you to upload your files to programs like Turbo Tax and also to spreadsheets if you really want to do some hardcore analysis. But this is another feature that I think sounds really great, but when you really think about it, it might not be all that valuable.

Take the tax thing for instance. I supposed you could download all your stock sales from Quicken into your tax program to calculate your capital gains, but who really does that? Doesn’t everyone just take the form that Vanguard or Fidelity or whoever sends you and plug all those numbers into your taxes? In all the years I used Quicken I never once used these features.

Advantage: Irrelevant edge to Quicken

COST: Mint is free, and that is awfully hard to beat. Quicken on the other will set you back between $50 and $100. Plus Quicken uses planned obsolescence where their product stops working after a while (it stops connecting to the internet to update your accounts), so you have to buy a new version every couple years. Certainly a few hundred dollars over a decade isn’t going to change the world, but I’d rather have it in my pocket than in Intuit’s.

Advantage: Big advantage to Mint

So there you have it. Looking at it, Quicken has more advantages than Mint, and that makes sense. Quicken is a better, more powerful product, no question. However, Mint has probably the two biggest advantages—its connectivity and it’s free.

I appreciate that I am a power user when it comes to these things, and even I find a lot of Quickens extra features overkill, and I just don’t end up using them. That makes me give the verdict that Mint is probably the better choice for most of you out there. But don’t shed a tear for Quicken and their parent company, Intuit. It turns out that Intuit owns Mint as well. So there’s a lesson in cannibalization.

What is your opinion on Mint or Quicken or any other system you use to track your finances?

Analyzing Obama’s portfolio

May 26, 2015August 18, 2015 Stocky Leave a comment

Last week, President Obama released his 2014 financial disclosure. Stocky Fox is going to take the liberty of analyzing the first family’s portfolio, and give my take on what he’s doing right and where he could improve.

First, here’s a quick summary of the numbers:

$90,000 in checking account. (The disclosure has ridiculously large ranges. For the checking accounts it says it’s between $52,000 and $130,000. In these cases, I just took the midpoint.)
$3.5 million in treasury notes.
$375,000 in treasury notes in an IRA.
$525,000 in Vanguard—the specific funds weren’t specified but let’s assume since their holdings for bonds is so high already, that this money is in stocks.
$300,000 in 529 accounts for his daughters.
$75,000 annual pension from state of Illinois when we was a state senator (for 7 years).
$190,000 annual pension from US for being president.
Owes $750,000 on mortgage with an interest rate of 5.625%.

The first thing you have to do is put all that in perspective. On one hand it seems like the Obamas have quite a bit. They have assets of about $5 million plus they’ll get almost $300,000 annually in pensions. That’s a lot of money and more than enough to live a very comfortable life.

On the other hand it doesn’t seem like that much. Obama has the most difficult and important job in the world. If you think of him as a CEO of a large organization, his “company” is orders of magnitudes larger than that of any corporate CEO. Yet Obama’s salary ($400,000 per year) and net worth are rounding errors compared to many of those in corporate America.

Also, Obama’s working career has a short shelf life. Once you’re president, you don’t really have a real job after that. John Quincy Adams went on to be a US Representative and Howard Taft went on to be a Supreme Court Justice after their presidential administrations, but that was over 100 years ago. Since then, after your president, you don’t really work. However, there is a ton of potential to make money on the speaking circuit (Bill Clinton made $13 million doing this in 2011). So with all of this, I think the Obamas will be very comfortable in life.

That said, are the Obamas maximizing their investments?

Super high mortgage rate

The first thing is they have a really high mortgage rate. They are paying 5.625%. The going rate for a 30-year mortgage is 4%, so they could easily refinance. Just that alone could save them about $22,000 per year in interest. Maybe that’s not top-of-mind for Obama as he’s leading the US, but I bet one of his aides could do all the paperwork for him. Take about 20 minutes to sign a bunch of documents and he just found an extra 5% of his pay. That’s about $1000 each year for the next 30 year for each minute of work. I wish I had an opportunity like that. Seems like a no-brainer.

Too much in his checking account

Why does he need $90,000 in his checking account? Seriously, what are his expenses? I don’t know how long he’s been parking that much in his checking account, but if we assume that it’s been since at least his second term started, he’s probably missed out on about $50,000 in gains from the stock market. I think he’s sitting on a lot of dead money there.

Good move with the 529s

It’s a smart move saving for his girls’ college with the 529s. I’m guessing that they won’t get scholarships, not because they wouldn’t deserve them, but more because it might seem “inappropriate” for them to accept them. Would the schools be kissing up to the president? Would it create a scandal when it came to light which student didn’t get the scholarship money that went to Malia and Sasha? Either way, if Obama knows he’s going to be paying money for college, at least he’s doing it in a tax advantaged way.

Way too much in bonds

He has about 90% of his assets in government bonds. He’s 53 and Michelle Obama is 51 which is relatively young, all things considered. That would be way too conservative for someone twenty or thirty years older than they, much less two people in their early 50s. And that’s not even counting the value of his pensions. The $300,000 he’s getting each year in pensions would equate to another few million dollars of bonds.

I don’t know what kind of limitations there are on presidential investing (if you do, please let us know in the comments section), but I would assume that he could have a super-broad mutual fund in some type of blind trust that made it impossible for him to favor one company to his own personal benefit. Wouldn’t that be something like the Vanguard Total Stock Index (VTSMX)? Maybe he could diversify to an international mutual fund too and show his counterparts that he’s invested in their economies, literally.

No matter how you slice it, he has left a ton of money on the table by having so much in bonds instead of equities. Just to put it in perspective, stocks have more than doubled since Obama took office. Bonds on the other hand are up about 30%. So maybe instead of being worth about $5 million, he could be worth $10 million.

Of course, this is all a bit of a fool’s errand. The Obamas and their children (and grandchildren) are never going to want for money. If so motivated, he will never have to pay for a meal for the rest of his life. If things do ever get tight, he could pull in a cool $10 million by doing a couple dozen speeches at corporate events. But it’s fun to see how some of the things we discuss on this blog relate to famous people.

In fact, I think it speaks to one of the problems that exist in personal finance today. President Obama is an incredibly smart individual, yet wouldn’t you have to give him a “D” when it comes to what he’s doing with his money? He’s fortunate that he makes a lot of money (and has very bright future prospects), but his choices have left millions on the table. It goes to show that it can happen to the best of us.

Mailbag

May 21, 2015August 18, 2015 Stocky Leave a comment

It’s time for the mailbag again. Thank you to everyone who reads the blog, and a special thank you to those who have emailed me questions. I enjoy seeing the questions my readers have and doing my best to answer them. If you have any questions about investing, please send them to me in a comment or email and I’ll be happy to include them in a future mailbag.

So without further adieu, here are actual questions from actual readers:

How do you allocate your investable funds across taxable and tax-deferred accounts?

–Aaron from Ft Wayne, IN

First, remember that tax-deferred accounts tie up your money for quite a while—until you’re in your 50s at least. So you have a longer time horizon, and the investments that best match a longer time horizon are stocks.

Also, tax-deferred accounts are most valuable earlier in your investing career (because you defer the taxes for longer). If you’re a younger investor then you should definitely have most, if not all, of your money in stocks just because of asset allocation. So those two conspire to tell you that stocks are probably the best bet for tax deferred accounts.

If you do decide to have bonds as a part of your portfolio then those probably make more sense to be in your taxable account just because that’s the money you want to be able to access if you need it in a hurry. Unfortunately, the tax treatment won’t be great because bonds tend to have higher yields than stocks so you will be taxed on those.

A final thought—if your entire portfolio is mostly stocks (as is the case with the Fox family), you can get a little creative with which stocks you put in taxable accounts and which in tax-deferred accounts. The logic is you would want to put the higher-yield stocks in a tax deferred account because you want to delay when you pay those taxes. For the Fox family, most of our money is in a US stock mutual fund (VTSAX) which has a dividend yield of about 1.8%, and an International stock mutual fund (VTIAX) which has a yield of 2.7%. All other things being equal, we should have our international mutual fund in the tax-deferred accounts because of the higher dividend. The tax savings aren’t going to change the world, but I would bet that over the course of an investing career, it would add up to maybe $10,000.

How to invest short term in a zero interest rate environment? (i.e. we’re buying a house within a year or two but not for certain yet – how to invest the down payment until then?)

— Noah from Chicago

There’s never a free lunch, so if you’re looking for a higher return you need to be willing to take on more risk. If your time horizon is a year or two, I think you would be pretty safe with a short-term bond fund (like VSGBX). In the past few years the return has been about 1.5% which isn’t very good. But the chances of you losing your initial investment are pretty low. So you have some upside with pretty limited downside.

If you’re a little braver, maybe you go to a bond fund with longer maturities (VBMFX). The return the past few years has been in the 4% range so that’s quite a bit better, but of course there’s a greater chance that you might lose some of your investment.

Having said that, there’s a double challenge with investing in bonds right now. First, current yields are super low (as you mentioned) so you aren’t making a lot on them. Second, eventually interests will rise and when they do, that will lower the prices of your bonds. So it’s tough to say. However, those two factors have been in place for at least 5 years, and long-term bonds have yielded 4% over that time, so who knows.

I would definitely not recommend stocks. Everyone says that the market is overvalued (but who knows really). However, stocks in general can take a 10% dive in the blink of an eye, and if you need that money in the next couple years to buy a house, I just don’t think it’s worth the risk.

Good luck and happy home hunting.

What about bitcoins? Any room for them in the portfolio?

–John

Bitcoins have definitely captured the imagination of the financial markets. Let’s break this question down into two parts:

Investing in foreign currencies as a strategy—Since bitcoins are really just a different currency, let’s look at this broadly. When Foxy Lady and I started investing in commodities, we also thought about investing in foreign currencies as well (I’m glad we didn’t because then we would have another investing disaster on our hands).

Similar to commodities, investing in foreign currencies isn’t generating value the way investing in a company does. With currency trading, you’re just betting that the euro or franc or yuan will do better than the dollar. Notice I used the word “bet” instead of “invest”. When you trade commodities, it’s a zero-sum game so if you make money that means someone else on the other side of that trade loses money. That’s just a game that I don’t feel qualified to play.

Also, if you are broadly diversified, you have exposure to foreign currencies with all the stocks you own since many of those companies are doing business in those different countries. So if they do appreciate against the dollar, then you have those benefits. That’s how I “invest” in foreign currencies.

All that said, if you have some special circumstance where you do business in a foreign country (or own a property there, or have some other connection) it might make sense to invest in foreign currencies as a hedge, but that’s really a different animal.

Bitcoins in particular—I think bitcoins are a super-cool innovation, and I like reading about the crazy moves they make. I also think that something like bitcoin will have a real place in our world in the coming years.

A lot of people don’t realize that money and currency has evolved tremendously over time. Obviously it started with precious metal coins, and those gave way to paper money backed by precious metals. In the United States, it wasn’t until the 1860s that there was a uniform national currency; before that individual banks could circulate their own notes. Then in the 1930s the US went off the gold standard so paper money became a fiat currency. In the 1950s credit cards opened up a world of virtual money which has grown to the point where today I would guess 99% of your transactions are cashless. My point is: Money is constantly evolving.

So I do believe that in the future something like bitcoin might really gain traction. However, I doubt it will specifically be bitcoin. Just like social media (Facebook wasn’t the first) or MP3 players (iPods weren’t the first), I think there will be a few false starts before something really takes hold.

I like to think I’m pretty savvy with this stuff, and I don’t completely understand how bitcoins work or how I would open an account. And it seems every six months or so there is a news story about how the bitcoin infrastructure is breaking down (here and here and here). I would recommend you just grind out strong returns using tried and true methods of investing in stocks. You won’t have the chance to 10x your money the way you could with bitcoin, but you won’t risk ending up with nothing either. If you’re a gambler at heart then put a little money in bitcoin, but just be honest with yourself—you aren’t investing, you’re gambling.

How do you feel about the use of 529s?

–Aaron from Ft Wayne, IN

OMG! A second Aaron from Ft Wayne? No, it’s the same guy, just with a second question.

Absolutely, if you have kids and plan on paying for some or all of their education, 529s are a no-brainer. A 529 takes after-tax dollars and then any gains you have are tax free. In that way, they act similar to a Roth IRA, and you know how I feel about IRAs. Over the course of your child’s childhood, that tax benefit could easily reach into the tens of thousands of dollars, so that’s pretty serious money.

Of course, the negative is that if your child doesn’t use the money (doesn’t go to college, gets scholarships, etc.) then you’ll be hit with penalties. That said, the rules are pretty flexible so if your kid doesn’t use the money almost any other family member (cousins, grandchildren, brothers, sisters, even you or your wife) can use the money for educational purposes.

I totally believe in 529s. Actually, I started the ones for Lil’ Fox and Mini Fox when there were still swimming around in Foxy Lady’s belly.

Thanks for the questions and please, keep them coming.

Your portfolio’s hidden cash

May 20, 2015August 18, 2015 Stocky 2 Comments

When I wrote my three ingredients post, a few of you commented that I was crazy to have so much of our portfolio in stocks and so little in bonds (less than 1% in bonds). Did I have a death wish or something? What if I told you that I think a ton of people are leaving gobs of money on the table because they are investing too conservatively? Tell me more, you say.

We know that you need to balance risk and return in our investments. This is most clearly done when we choose our mix of stocks (more risky, higher average returns) and bonds (less risky, lower average returns). As an investor gets older they want to shift their asset allocation towards less risky investments because their time horizon is shortening. We all agree with this. So where is this hidden pot of gold I’m talking about?

Let’s look at the example of Mr and Mrs Grizzly. They are both 65 years old and entering retirement. They worked hard over the years and socked away $1 million that will see them through their golden years. They do some internet research and learn that a sensible asset allocation in retirement is 40% stocks and 60% bonds, so they invest $400k in stocks and $600k in bonds. Knowing the long term average returns are 8% for stocks and 4% for bonds, they expect their $1 million nest egg to generate about $56,000 per year ($400k * 8% + $600k *4%) , knowing that some years it will be more and some years it will be less. So far so good, right?

1 m

THEY ARE LEAVING MAYBE $20,000 PER YEAR ON THE TABLE. That’s a ton of money. How can this be? They seem to be doing everything right. The answer is they are being way too conservative with their asset allocation. They shouldn’t be investing $600k in bonds and $400 in stocks; stocks should be a much higher percentage.

Waaaaiiiiiiiittttttttt!!! But didn’t we agree that about 60% of their portfolio should be in less risky investments? Yes, we did. Are you confused yet?

Hidden cash

Here’s what I didn’t tell you. Mr and Mrs Grizzly have other investments that act a lot like bonds that aren’t included in that $1 million. Both Mr Grizzly and Mrs Grizzly are eligible for Social Security with their monthly payments being $2000 each. If Mr Grizzly (age 65) went to a company like Fidelity and bought an annuity that paid him $2000 each month until he died (doesn’t that sound a lot like Social Security), that would cost about $450k. So in a way, Mr Grizzly’s Social Security payments are acting like a $450k government bond (theoretically it would be more than $450k since the US government has a better credit rating than Fidelity). And remember that Mrs Grizzly is getting similar payments, so as a couple they have about $900k worth of “bond-ish” investments.

Also, Mr and Mrs Grizzly own their home that they could probably sell for $300k. They don’t plan on selling but if they ever needed to they could tap the equity in their home either by selling it or doing a reverse mortgage. So in a way, their house is another savings account for $300k.

If you add that up, all the sudden the picture looks really different. They have about $950k of Social Security benefits that have the safety of a government bond. Plus they have that $300k equity in their house. That’s $1.25 million right there.

Investing your portfolio

So now let’s bring this bad boy full circle. Remember their $1 million nest egg they were looking to invest? Look at that in the context of their Social Security and house. Now their total “assets” are about $2.25 million. If you believe that the Social Security and house kind of feel like a bond, just those by themselves account for 55% of their portfolio. If on top of that if you invest 60% of their $1 million nest egg in bonds, they have over 80% of their money in bonds, and that seems way too high.

2 25 m a

On the other hand, let’s say they only put $100k of their nest egg into bonds and the rest into stocks, after you include their social security and home, they’d be at about 60% bonds and 40% stocks. Isn’t that what they were aiming for the whole time?

2 25 m b

Wow. It took a long time to get there, Stocky. The punchline better be worth it. Remember that with $600k in bonds and $400k in stocks, they had an expected return of about $56,000 per year. However, if they have $100k in bonds and $900k in stocks, because stocks are more volatile but have a higher expected return, they can expect about $76,000 ($800k * 8% + $100k *4%). THAT’S $20,000!!!

But aren’t they taking on a lot more risk to get that extra $20k? Remember, there’s no such thing as a free lunch. For sure, but if you look at it in the context of their Social Security benefits and their home, they have a fair amount of cushion from “safe investments” to see them through any rough patches in the stock market.

I wrote this post to show that people really need to take account all the financial resources they have. In the Grizzly’s case, it was their Social Security benefits and their home. Others of you may be getting a pension (Medtronic is generous enough to offer the Fox family one) or a second home or a dozen other things like that.

When you take those cash flows into account, all the sudden it seems a lot more reasonable to invest the rest of your money a little more heavily in stocks which you know over the long haul will give you a better return.

Diversification—the vitamin C of investing

May 18, 2015August 18, 2015 Stocky 5 Comments

“Don’t look for the needle in the haystack. Just buy the haystack!” –John Bogel, founder of Vanguard Mutual Funds

In honor of my beautiful wife, Foxy Lady, I am using a picture of Nature Made Vitamin C. Nature Made makes far and away the best vitamins in the world. They are the only vitamins I use and the only ones I trust for Lil’ Fox and Mini Fox. Did I mention that Foxy Lady works for Nature Made?

But what gives? What does vitamin C have to do with investing or diversification? There’s no question vitamin C is good for you, really good for you. If you don’t have enough you’ll get scurvy or some other awful disease. But you only need a little bit, about 90 milligrams or so—as much as is in an orange. Anything more than that and you just have vitamin C-fortified pee (keeping it classy).

In a lot of ways diversifying your investments is like taking vitamin C: It’s a really important thing to do. It’s not very hard to do. Once you get to a certain point, diversifying more (or taking more vitamin C) doesn’t really help.

Broad is best

In the Elite Eight tournament we talked about diversification. There are two ways you can look at diversification: It can be a risk-reducing strategy where you limit the volatility of your portfolio by not being too heavily invested in a single stock, industry, country etc. We’ll call that the “too many eggs in one basket” approach. The other way is thinking that you don’t know which stocks will do well so pick a bunch of them to increase the chances of having a winner (hence the quote at the beginning of this post). We’ll call that the “casting a wide net” approach. But they’re really two sides of the same coin.

As I said, diversification isn’t that hard. Mathematically, you could be completely diversified with 20 or so well-picked stocks. Of course, you would have to pick those stocks really well, so that seems like a lot of work. But the good people at Vanguard and Fidelity and all the mutual fund companies have made diversification super-duper easy by offer broad mutual funds that consist of hundreds of stocks. Problem solved.

But not really. Take a look at almost every mutual fund. An S&P 500 index invests in large US companies, but what about smaller companies or international companies? This year is a really good example—the S&P 500 is up about 3% while international stocks are up about 13% or so. You also have sector specific mutual funds like Vanguard’s Energy fund (VGENX) which invests in energy-related companies, but what about consumer goods or healthcare or insurance or the hundred other industries? You have geographically-specific funds like Vanguard’s Pacific Stock Market fund (VPADX) but what about Europe, the Americas and the Emerging markets? You get my point.

If you pick any mutual fund other than a total US mutual fund (like VTSMX) and a total international mutual fund (like VGTSX), both of which I own incidentally, you’re almost by definition leaving something out. Maybe that’s your intention—that you think larger companies will do better, or emerging markets will do better, or high dividend stocks will do better, and on and on. As you know from my total buy in of A Random Walk Down Wall Street, I don’t think I have that skill. So I just want to own a little slice of everything.

By owning the broadest mutual funds out there (investing in the largest number of stocks) I kind of achieve those two goals of diversification: I own so many small slices of different companies that if one goes bad I hardly feel it, but at the same time I have my finger in everything so if any particular sector does well I participate in that a little bit.

All your eggs in one mutual fund

However, some raised a concern from my three ingredients post that if 38% of my portfolio is in only one mutual fund, should that be a concern? Shouldn’t I diversify to other broad US mutual funds? This is where I think the vitamin C analogy comes in. Once you’re in a mutual fund, investing in another mutual fund (with the same objectives) really doesn’t “diversify you more”. You’re at the point where you’re already diversified, so diversifying more is like taking more vitamin C after you’ve already hit your daily allowance—a waste of effort that really doesn’t benefit you.

That said, given that 99% of the Fox family’s money is in Vanguard, I suppose maybe there is a risk that if something happened to Vanguard, then we’d be in trouble. Should I split my investments up and put some money in Fidelity as well? I don’t think so. First, I think Vanguard is a very reputable company so I don’t think any shenanigans are going on (like what happened with Bernie Madoff). Second, and more important, the system is set up so even if Vanguard went bankrupt, my investments are still safe. Remember that I’m not investing in Vanguard, I’m investing in companies like Coca-Cola and Proctor & Gamble and Ford. Vanguard just facilitates those transactions.

I’m not an expert so maybe one of my readers who works in the industry can opine, but if Vanguard went to hell, all my money and the millions of other investors in Vanguard (including President Obama) is protected in a manner that Vanguard can’t touch it. With all the things to worry about in this world, Vanguard or Fidelity or the other reputable firms out there going fleecing my money is not one of them.

So through it all, you want to make sure you’re diversified. Of course, you already knew that. If you invest in mutual funds, that’s probably one of the main reasons you do so. But make sure you know how diversified you are. Investing in bunch of large US companies (S&P 500) is definitely diversified in one sense, but not diversified in the “casting a wide net” sense. That said, once you cast that wide net, don’t feel that you need to cast a second net.

How do you look at diversification? Please leave a comment and let me know how you approach it.

You only need three investing ingredients

May 13, 2015August 18, 2015 Stocky 9 Comments

“Less is more” –Robert Browning

The fine people at McIlhenny make Tabasco sauce, one of the most popular condiments in America. Can you guess how many ingredients go into their sauce (you might have an idea from the title of this post)? You guessed it, three: peppers, vinegar, and salt. That’s it. Nothing else. Only those three. In investing you can take a similar approach. In a world where there are thousands of stocks to pick from, thousands of bonds, tens of thousands of mutual funds, how do you pick which ones to go with?

Let’s break this down one step at a time. First we know from Asset Allocation that our portfolio needs some stocks and some bonds. That’s at least two different investments—one for stocks and one for bonds.

Second, we know from Diversification that we should be . . . well, diversified. There are a ton of mutual funds out there that can give us plenty of diversification with the stock market. I personally like either the Total Stock Market Index from Vanguard (VTSMX) or the Spartan Total Market Index from Fidelity (FSTMX). But wait, those are all (or very nearly all) US stocks. To be really diversified don’t we need international stocks as well? The answer is an unequivocal “YES”. So let’s add a highly diversified international stock mutual fund like Vanguard’s Total International Stock Index (VGTSX) or Fidelity’s Spartan International Index Fund (FSIIX).

With a broad US stock mutual fund and an international mutual fund, you pretty much own a small sliver of every stock in the world. Add to those two mutual funds a bond mutual fund like VTSMX or FBIDX, and you have your three ingredients, just like Tabasco sauce.

Can it really be that easy? I say “yes” but let’s look at some of the objections you might have:

What about an international bond fund?

Fair point. We have an international stock fund to give us diversification for our US stocks. Shouldn’t we have an international bond fund for a similar purpose? Maybe.

I don’t because bonds are such a small portion of my portfolio right now (less than 5%), mostly due to the stage of our lives that Foxy Lady and I are at. So I don’t think it’s really worth the hassle. When we get older and Asset Allocation dictates that a larger portion of our portfolio should be bonds, then having two bond funds might make a lot of sense from a diversification perspective.

Why not use a total world fund?

Vanguard does have a total world stock index fund (VTWSX) that combines both US and international equities. You could imagine just having this one mutual fund for stocks instead of two (a US fund and an international fund). That’s reasonable and knocks your ingredient list down to two.

Yet I choose not to do this because I am cheap. The total world index fund as a management fee of 0.27%. That’s low but the management fee is 0.17% for Vanguard’s US fund and 0.22% for their international fund. Shame on you Vanguard!!! Why are you charging more when you combine them. It’s not a ton, but we know that even increasing your returns a small amount like 0.05% can still be thousands of dollars over the years.

Why not use a target date fund?

You could do a total one-stop shop using a target fund like Vanguard Target Retirement 2050 (VFIFX) or whichever year makes sense. You get your US and international stocks and your US and international bonds all in a single mutual fund. As I mentioned before, I’m not a huge fan of these because I think figuring out your asset allocation is a little more nuanced than just picking a year, but I’m a little OCD when it comes to this. That might be the best choice for someone who is willing to trade a small amount of mutual fund performance for a lot of simplicity.

What about all the other investments out there?

Ahhhhh. That’s the question we’ve been waiting for. I am a firm advocate of efficient markets so I really don’t think I can successfully pick individual stocks or even stock sectors. I’d rather just pick a really broad index mutual fund knowing that the winners and losers will balance each other out and over the long run I will do okay.

That said, beyond those basic three ingredients, the Foxes have invested in two other investments. We have a commodity ETF (DJP) which has turned out to be the worst investment that we’ve ever made (which I chronicled here). Also, we invested in a REIT index fund (VGSLX) when I thought that real estate would be a good investment. From 2010 to 2014 this turned out to be the case and we did quite well with this, but so far in 2015 it has been our worst performer. That just goes to show that trying to beat the market is a futile effort.

Does Stocky Fox eat his own cooking?

For the sake of full disclosure, I’ll tell you where our investments are.

Investment	Ticker symbol	% of portfolio
US stock fund	VTSAX	38%
International stock fund	VTIAX	22%
Bond fund	VBMFX	1%
REIT fund	VGSLX	12%
Commodities	DJP	8%
Medtronic stock	MDT	9%
Other		12%

I already mentioned the REIT and commodities investments. The Medtronic stock is because I work at Medtronic and there is a really generous program which allows employees to purchase Medtronic stock at a discount, so I take advantage of that. Also, we get a portion of our bonus in Medtronic stock. All that said, there was a time when Medtronic stock was about 15% of our portfolio so I have been selling shares and reinvesting the proceeds in the US and International stock mutual funds.

The “Other” is composed mostly of Lady Fox’s and my 401k accounts. Since you only have limited choices with those, we couldn’t pick precisely the VTSAX or VTIAX, but we chose the ones that are closest to that.

So there you go. With all the crazy things going on in the world, and all the things that need your attention, I think which investments to pick is an easy one. With three fundamental building blocks—a US stock mutual fund, an international stock mutual fund, and a bond mutual fund—you can build a rock solid portfolio.

So which investments do you pick?

Commodities—Stocky’s worst investment of all time

May 11, 2015May 10, 2015 Stocky 3 Comments

I know you look up to me and imagine that all my investments are good ones. Oh, if only that were true. I have had my share of lousy investments, but far-and-away the worst is my investment in a commodities ETF (ticker symbol DJP).

My general philosophy with investing is pick a broad index mutual fund. Over half of the Fox portfolio is in a US stock index mutual fund (VTSAX) and an international stock index mutual fund (VTIAX). Yet, back in 2010 Foxy Lady and I made the decision that we should also dabble commodities. Over the past five years, that investment has lost about $40,000. Here is our sad tale.

What we did?

In 2010 Foxy Lady and Stocky Fox engaged in a nuptial extravaganza that Chicagoans still talk about (not really). Now as a married couple, we decided that investing in commodities (after we maxed out our 401k’s, of course) might be a good idea. The financial world was still licking its wounds from the 2008 financial crises so there was still an underlying discomfort with stocks. Plus, the world’s central banks were doing a lot of crazy shenanigans like Quantitative Easing and other things that might lead to major inflation if not handled just right. Finally, commodities had an amazing run up in the previous few year, but then got hammered during the 2008 recession, so they were well off their highs; they seemed like a bargain at the time.

Dang!!! Do you see two or three basic invest rules that we broke there?

I started doing research on what type of investment would suit our needs. There were some mutual funds out there, but they invested in companies that were related to commodities. Vanguard’s Precious Metals and Mining Fund (VGPMX) was composed of stocks whose companies owned mines and things like that. That didn’t make sense because we already had broad stock mutual funds that probably already invested in those companies. We wanted to own the actual commodity, the actual gold so to speak.

There were a lot of ETFs that tracked a specific commodity like oil (ticker symbol, surprisingly, is OIL), natural gas (GAZ), livestock (COW), grains (JJG), and on and on. I liked the sound of that, but I wanted to be really diversified with commodities, so I didn’t want to have to buy 10 or 20 different ones. I kept searching and I found DJP—it seemed like everything I wanted. In a single investment we got a mix of energy, precious metals, industrial metals, livestock, and foodstuffs.

We found our winner. It took a day or two to set up our brokerage account with Vanguard, and then we started making monthly investments into DJP.

What happened?

Things started off well. After a year, commodities prices had gone up about 20% or so, and we had made a few thousand dollars on this investment. I was congratulating myself for being a financial genius, and all seemed right in the world.

And then the wheels came off. DJP peaked in April 2011 at around $50 and then it began its unrelenting, free fall down to about $30 where it sits today. From a fundamental perspective, it’s easy to see what happened. The economy started to slow which curbed the demand for commodities, putting major downward pressure on their prices. At the same time, the fracking revolution happened in the US, unlocking tremendous amounts of oil and natural gas. Those are the two largest components of DJP, and when all that new supply came on line, it just hammered our investment.

Keeping faith in “dollar cost averaging” we continued to make our monthly investment all the way through November of 2014. At that point, for tax reasons that aren’t worth getting in to, we stopped continuing to invest, but we still currently hold a pretty decent chunk of DJP. In March 2015 it hit bottom at about $28 and has since rallied to about $30. Small victories, right? That said, we still have a loss on this investment of about $40,000.

Why were we so stupid?

You heard our tale of woe. So why was Stocky so stupid? Why does he continue to hold this investment when it’s been so bad?

First, let’s understand the whole reason to invest in commodities. Unlike stocks, commodities don’t produce anything of value. When you invest in them, you’re just betting that their price goes up. Over the long-term commodities have been a horrible investment compared to stocks (which are companies that actually create something of value).

So with all that, why invest in commodities at all? They are really a hedge or “insurance policy” against the double nightmare of inflation and stagnant economic growth—stagflation. If central banks started printing money, inflation would rear its ugly head and the pieces of paper we call dollars and euros and yuans would not be worth as much. However, things like gold or corn or oil or cows would maintain their intrinsic value.

But wait a second. Aren’t stocks a good hedge against inflation? After all, they are real assets like property, plant, and equipment. The answer is “yes”. However, the largest portion of a stock’s value is the expectation of future earnings. If the world economy really takes a body blow, stocks are going to lose a lot of value.

Look at these two charts—one is for the price of gold and the other is for the price of oil, the two most common investment commodities. They had two major run-ups nearly at identical times, in the late 70s/early 80s and right around the 2008 financial crisis. Those were the two most pessimistic times for stock investing in the past 70 years.

gold

oil

In the 1980s the Cold War was at its peak, OPEC was flexing its muscles, the US economy was crap, interest rates were at 20% and inflation was at 13%. People legitimately thought that capitalism wasn’t going to survive. The best thing to own was real stuff that people valued in the here and now. Similar story with the 2008 financial crisis. The banking system collapsed and it seemed like central banks were just going to wallpaper the world with paper currency. Similarly people thought capitalism might be dead, and similarly the commodities had a tremendous run.

In both cases, capitalism did survive and did in fact thrive. Commodities crashed and the world went on. But all this illustrates that commodities do act as a real hedge against the armageddon scenario. Diversification is an unambiguously good thing, so that is why the Foxes hold commodities. Like all insurance, it’s not something you expect to make money on when things are going well, and keep in mind the stock market has done tremendously well since we started investing in commodities in 2010. Rather, you want insurance to be there when everything goes to hell.

So that’s our story. As I said, we still hold a small portion of our portfolio in commodities, but it is far and away our worst performing investment.

How about you? What was your worst investment?

Week in review (8-May-2015)

May 8, 2015May 8, 2015 Stocky Leave a comment

Talk about a whipsaw week. Most markets dropped about 2% by Wednesday only to mount a furious comeback and end up pretty much where they started.

This week is one of the really good examples of why I started these week-in-review posts. There was a ton of energy and excitement in the financial markets, starting out with doom and gloom and how everything is going to hell, with the markets falling accordingly. And then on Friday everything seems to be all better, so let’s forget all the bad stuff we thought was happening.

Weeks like this are classic illustrations of why a buy-and-hold strategy is such a good choice. You avoid all the distractions that come day to day in the market. Of course, I love all the day to day craziness just like I will enjoy watching the Bulls take on the Cavs tonight. However, in both cases, the events are pretty meaningless and a month from now we won’t even remember what caused all the excitement. But while we’re where, what did cause all the excitement?

Productivity falls:

On Tuesday the US Labor Department announced that worker productivity had fallen for the second quarter in a row. That coupled with reports that the US economy probably shrank in Q1 sent markets tumbling about 2% or so over the Tuesday and Wednesday.

Obviously GDP growth and productivity are the core engines of the economy and therefore of the stock market. So to here that some fissures are forming is certainly not good news and the markets reacted accordingly.

“Stocks are quite high”:

Wednesday Janet Yellen, Chairwoman of the US Federal Reserve, added to the stock market’s woes by saying that stock prices were “quite high”. It wasn’t nearly as colorful language as Alan Greenspan’s “Irrational exuberance” comment from the late 1990s, but it had the similar affect of rattling the markets.

But has there ever been a Fed Chairman/woman who said that stocks were low or fair-valued? They always seem to be predicting doom and gloom in a 30-year period that has shown an amazing track record for stock performance (actually “amazing” probably isn’t even a strong enough word).

Sometimes you get the sense that they just like to rattle the markets to show that they can. I imagine Janet Yellen telling Mario Dragi (her counterpart in Europe): “Hey, watch. I’m going to say something that will bring the markets down a percent or two. You should try it. It’s a lot of fun.” I’m totally kidding, but what is the point of her saying anything about the prices in the stock market?

Unemployment falls:

Friday morning the employment report came out showing that the US economy added about 220,000 more jobs. So all is right in the world again. Wasn’t it just a couple days ago that we were all freaking out because economic growth and productivity were down? Plus Janet said stocks were too high. But wouldn’t you know it turned out they weren’t high enough, so stocks shot up 1.5% on Friday.

Seriously, this is why stock markets are like . . . . I don’t know what is a good analogy but the lesson here is definitely to not get caught up in the day to day gyrations. Hopefully you’re investing in your 401k and dollar cost averaging your other investments. You can enjoy the comedy of the daily market moves, and all the silly pundits that try to make sense of it all.

I hope you have a great weekend. And to all you mothers out there, have a wonderful Mother’s Day.

Era after 1930—inflation adjusted

May 7, 2015August 18, 2015 Stocky 1 Comment

Philippine-stock-market-board

A few weeks back I wrote a post saying that the chances of losing money in the stock market over the long run are really low, at least based on a historical perspective since 1871. Yesterday I revised the analysis to look at the era since 1930, and I found that stocks performed even better.

However Andrew H, a reader from Chicago, commented that my analysis only scratched the surface. I just looked at whether an investor made or lost money, not how much they made or lost. Also, I didn’t take inflation into account (you know my reasons). They are very valid criticisms, so I am taking up Andrew H’s gauntlet.

As an aside, Andrew H and I went to junior high together. He was the smartest (or possibly the second smartest while I on the other hand was maybe the 40th smartest) student in our school, and I admit that I always looked up to him. This one’s for you Andrew H.

Refresher from last time

We’ve already seen that if you look at returns since 1930 (I’ll explain why I’m starting with 1930 instead of 1871 in a second), the chances of you losing money in the stock market after a year is about 26%. Of course we know time is on your side, so if you look at a five-year period, the chances of you losing money go down to 10%. At 10 years it’s 2%, and at 20 years and 30 years it’s 0%–there is not a single 20 or 30 year time period since 1930 where dollar cost averaging in the US stock market would have resulted in a loss. Let that sink in for a second.

Losing money

But Andrew H raised some very valid points, so let’s see what the data says.

Return distribution

Going back to 1930, we already said that you don’t have a single instance where if you invested the same amount of money every month, that you would have lost money over a 20-year time period. If you assumed that you invested $10 every month, over 20 years your total investment would have been $2400.

Of all the 20-year time periods since 1930 (there are 768 of them if you’re curious), the worst you would have ever done was starting in March 1989 (ending at the depths of the 2008 financial crisis) and you would have ended up with $3388. So your $2400 investment increased over 40%. Of course if you annualize it, that is only 3.3% per year. But that’s still pretty good isn’t it? The best it ever got was starting in April 1979 (ending as the tech bubble was peaking in 1999) where your $2400 would have become $20,236 (over 18% annualized).

You can do the same thing for the 30-year-time periods (648 of those) and you get similar results. You would have invested $3600. Your worst outcome would have been starting in October 1952 (ending as inflation peaked and the US was in the recession of the early 1980s) where you would have ended up with $12,827. Just like before, that doesn’t really seem all that bad. Over 30 years your money quadrupled and that was the WORST it ever got (7.5% annualized). The best was starting in February 1970 (again, ending with the 1999 tech bubble) where $3600 would have become $62,868 (16% annualized).

If you graph out the distributions you get this:

For both time horizons, you see that most of your returns are in the 8% to 16% range. As we just mentioned, you have some down years where the returns get a bit low, but even then they stay well above 0%.

Including inflation:

You can run a similar analysis but include inflation. Even I would agree that inflation during some of those time periods were substantial (although of course, not as substantial as the CPI would lead you to believe). The reason I chose to do this analysis starting in 1930 instead of 1871 is because of inflation. The CPI started 1913. You can estimate data before that but I really don’t trust that data. I think inflation is a questionable enough factor as it is, so there you go. Either way, I don’t think it changes the conclusions we’ll come to.

So when you invested each month $3600 starting in 1952, how much would your $12,827 buy you in 1982. Remember that the 1970s and early 1980s had tremendous inflation (peaking at well over 10%), so it is going to have a major impact.

As we expected, those distribution curves shifted to the left (the real returns got worse when we accounted for inflation). Looking at the 20-year time horizon, you had negative real returns* about 5% of the time. So there you go. That’s a bit of a bummer but that’s reality. There were some periods that started in the 1950s and early 1960s (so they ended in the late 1970s and early 1980s) when inflation would have eaten away your returns and taken you into the red.

However, Father Time comes riding in on his white horse and saves the day. While there were a few negative periods if you just used 20 years, if you push your time horizon up to 30 years there are no negative returns. In fact, the worst time period was October 1952 (same as when we didn’t include inflation). Remember that if you didn’t account for inflation your return over those 30 years was 7.5%, but now if you account for inflation it drops to 1.3% per year. That’s a big drip and it definitely sucks, but remember, that’s the WORST. As bad as it gets, the stock market has historically delivered a positive return even after you strip out inflation.

With inflation

I want to thank Andrew H for keeping me honest. This little exercise has just further reinforced my faith that investing over the long term will make you money (ha, you thought I was going to forget—historic performance does not guarantee anything in the future). No one knows what the future holds, but if history is any guide, putting your money in the stock market over your investing career is a pretty solid move.

*When I say “real returns” that means returns that have been adjusted for inflation.

Era after 1930

May 6, 2015August 18, 2015 Stocky Leave a comment

Philippine-stock-market-board

A while back I did a post on the likelihood of an investor losing money in the stock market. Going back to 1871 the data showed pretty conclusively that if you dollar cost average and give yourself enough time, the chances of losing money approach zero.

As a follow up, I did the same analysis but instead of looking all the way back since 1871, I only went back to 1930. 1871 was a long time ago and reasonable people can debate how relevant investing in the stock market back then is to today. Fair question. In 1871 trains and horses were the main modes of transportation; cars and airplanes hadn’t even been dreamed up yet. Oil had been discovered just 12 years before, slavery had been abolished only 8 years before, and there were a total of 37 states in the US. So I agree it’s probably too different to be comparable.

On to the results

I ran the same analysis, looking at the percentage of time that a person investing equal monthly amounts in the stock market would come out profitable, but this time I started in January 1930. Despite the different time period, the data looks largely the same. The data from 1871 showed that looking at a one-year time period, investments were down 28% of the time; looking at the data from 1930 it’s 26%. In fact the data seems to be in lock-step, and you can see from the graph, that the bars are virtually identical.

But there is a curious feature. In every instance the data from 1930 is better than the data from 1871—the chances of you losing money were reduced in the later time period. Why is that? It isn’t inflation: inflation was worse in the earlier period than the later period (plus you know I think inflation data is suspect anyway). It couldn’t be geopolitical: both periods had world wars, but the earlier period was more peaceful in the US at least than the later period. Technology made huge strides in both periods: cars, airplanes, oil in the first period; computers, satellites, internet in the second. But the data sets are big enough that those differences are definitely statistically significant.

Securities reforms in the 1930s

My theory is the difference is caused by investing becoming a much safer place after 1930 than it was before. After the stock market crash of 1929 which led to the Great Depression, legislatures passed a host of reforms to better regulate the securities industries, including the establishment of the SEC in 1934. Reasonable people can take jabs at these reforms, especially when felons like Bernie Madoff, Ivan Boseky, and Jeffery Skilling, cheat investors out of millions and billions of dollars.

But difference between the pre-1930 and post-1930 investing environments is night and day. Nowadays we can be fairly confident that the companies whose stocks we own are real and that their accounting is legitimate. Certainly the system breaks down, but before all the regulations were passed it was the Wild West. Stock scams were rampant instead of being the exception, and it seems to me that successful investing had less to do with investing in good companies and more to do with avoiding thieves. We’re investing in much, much better times.

The other big difference I see is the Federal Reserve. Although it was originally established in 1913, it was emboldened in the 1930s in response to the Great Depression and started to take the form that exists today.

To put things in perspective, in 1907 there was a financial crisis somewhat similar in severity to the 2008 crisis (from peak to trough, stocks were down about 50% in both the 1907 and 2008 crises). Both were crazy times that caused people to legitimately worry about the future of the US economic system. The difference was that in 2008 it was the Federal Reserve and the Treasury Department (led by Ben Bernake and Hank Paulson, respectively) that guided the country through the mess, while in 1907 it was a private citizen name JP Morgan.

Go ahead and let that sink in for a second. In 1907, during the worst financial crisis in a generation, it was a banker who rallied the troops to ensure that healthy banks didn’t get killed in bank runs, maintained the credit worthiness of the US and New York City, fended off the palpable crisis of confidence, and ultimately pulled the economy through. That’s amazing that a single man with no government affiliation had such power, but it’s also unsettling. Morgan didn’t owe the average US citizen anything; he was serving his own interests (although he certainly positioned his actions as patriotic) and the country was fortunate that its interests lined up with his.

The Federal Reserve has a defined mandate to serve the interests of the American people; some may argue how well it does that, but you’re always going to have that. Also, in the last 100 years, we as a society have become much more knowledgeable and sophisticated about the tools which can be used to guide an economy. Back in 1907 I don’t think they had a clue what the concept of “Quantitative Easing” was, but in 2008 it saved the economy. It’s impossible to know, but I personally believe that had the crisis of 2008 happened a century earlier, it would have led to another Great Depression.

Who knows on all this stuff, but you have my theories. I absolutely believe that as an investor we are better positioned to succeed than ever before, and that is just one of the many reasons why I have a ton of confidence in the stock market. This is confirmed when I look at the data.

As a follow-up, a reader suggested that I look at the data and take inflation into account. Although it pains me to give that much credence to inflation, I will take up the challenge. Stop by tomorrow to see how the data looks when you adjust for inflation. If that’s not a cliffhanger on par with “Who shot JR?” I don’t know what is.

What are your thoughts? Did I get it right, or have I been drinking the Fed Kool-aid?