Financial Freedom Sloth

achieving financial freedom one lazy step at a time

Category: essential truths (page 1 of 2)

Adventures in day trading

I already talked about how I ended up at Lynx here. Lynx offered a multitude of new possibilities for me and in my first post about how I was going to use these I also mentioned day trading.

I had this to say about it:

With the SAB MILLER position active and me not needing to work at the time I grew bored. So I tried my hand at day trading. Technically it was day trading because I was buying and selling on the same day. But actually I had identified some stock that was cheap and I wanted to buy some. I just didn’t feel too comfortable with already having a 200.000 GBP leveraged position so as soon as I made some profit I closed the position (and thus the extra leverage). I practiced a bit with Berkshire Hathaway and Coca cola. And then when Google went down to 730 USD I really had some fun with it. Real day trading is off course have dozens or even hundreds of trades and playing both an uptrend and downtrend in stock price. I just bought stock I thought was cheap and then sold with a small profit. Sometimes I only did 1 or 2 of these trades, and some days 6 or 8. I found it to be way to much work and also too much stress but I did make around 2.500 USD in profits from it (another 1% added to the stash). But it would have been much more profitable to just buy Google at 730 USD, keep it for a few months and then sell it around 780 USD. I just wasn’t very comfortable with that amount of leverage at that time.

I stopped day trading when I started working again but then my temporary contract ended at the end of January. Since I once again had a leveraged construction at 2x leverage in my portfolio I decided to start day trading again.

Let’s do it again

My approach remained the same. So I chose google again to trade in.

The reasons for this is that I believe in the long term prospects of google (by which I mean the stock price should go up over time) and it usually has enough volatility during the day to make a small profit of at least a 100 USD of it with a trade.

I usually buy 100 CfD’s on Google. This costs me 5 USD in fees as that is the minimum fee Lynx charges. Selling will cost me another 5 USD so Google needs to go up 0,10 USD for me to break even. I usually try to make 100 USD on a trade. So google needs to move 1,10 USD for this to happen. This is about 0.0011%. So changes of this happening are pretty good.

Pretty good doesn’t mean guaranteed. Last Thursday would have been a bad day to try to day trade in google.

One of my own rules is that really bad days I stay away. Yes, even Thursday there would have been 2 or three points (red arrows) where a quick in and out hopping could have made some money but chances of picking the exact right time are too low to risk it.

I also do not trade when the stock is at an all-time high price (though I broke that rule to buy just below 1000 USD and then sell just above 1000 USD just so I could say I traded Google went it went over the 1000 USD share price. I now, stupid. Especially because nobody but me cares about something like that…). I also do not trade when the stock is at a high for that day.

What do I trade? Little drops in the stock.

15 August would have been a good day to trade.

There are 4 moments where I might have traded. We had a friend over so I didn’t go and sit behind the PC but I did want to show off a little bit so late in the afternoon I did log in. I was just in time for the last moment and opened a position. The upward movement wasn’t as strong as I thought it would be (should have sold at the first black arrow) so I left some money on the table but in the end was able to close the position with a net profit of 50 USD (sold somewhere around the second black arrow).

The trick is off course to identify that the dip is in fact a dip and not the beginning of a big downward movement. Either I have been lucky so far or I kinda have a ‘feel’ for it. But I have also closed positions at no profit or only 5 or 8 USD profit because the upward movement I thought would happen just didn’t materialize. I have had Google do nothing but go down after I open a position. Lucky for me this happened at prize points where I didn’t mind holding Google. So my day trade position then became a multi-day or in two occasions even multi-week position until Google rebound so I could exit the position at a profit. It is why I do not day trade when Google is at (or near) an all-time high (with the one exception, I knew it would cross the 1000 USD mark). Let’s just say I am pretty happy with the last drop in Google price. It is now at a level I feel comfortable trading it again.

As you just read there is nothing sophisticated or glamorous about it. But it is some extra money on a regular basis. Last year I made around 2.500 USD (in a couple of months) and this year I am around 3.250 USD (the price of the Vespa!). It is a little bit extra I now do in an effort to get the home renovations done quicker. My estimate is that the remaining home renovation will take around 50.000 euro. The girlfriend and me can save around 10.000 euro a year so these should take 5 years to  complete. If I make an additional 10.000 euro by day trading in the next 4 years well that is one year quicker that our house is finished. Since I do not want to retire before the renovations are done this could shave off a full year of me working!

I can feel my mind slipping

Before I started day trading I had read it is mostly a mental game and I can confirm it is.

First and all, you need to be able to stare at the price of a stock for hours. It literally is looking at a screen. So you have to be able to do that (luckily I have had lots of training at my previous jobs for this). And then you have to fight the urge to open a position. Believe me, this is hard! That is why you are sitting there after all! And the longer you sit there, the more you want to enter a trade.

Then when you do enter a trade there are nerves. Because your timing is never perfect. Meaning you buy in a dip, but the dip continues … And every 0.1 USD drop is costing you 10 USD. You are sitting there thinking: I should have waited a bit longer! I am leaving money on the table!!

Then the stock goes up. Oef, yes, it was a dip, yes I am going to make money here!

Then it goes down a bit again. We are talking cents here, cents on a 925 USD stock. So off course it is moving up and down. I always does that but what you need to determine here is: is the dip over and will it go higher or is the dip not over yet? Is this a little upward bounce before going down a lot more? How strong is the upward movement?

In all honesty, sometimes I exit the trade just in time before it drops another dollar. In those cases I feel pretty smart. But sometimes I get out with 5 or 10 USD profit thinking the stock will go down again but then it starts a strong upward movement, going up 2 or 3 dollar. Which means I just missed 300 USD profits. I feel pretty stupid then.

You need to leave your emotions at home. But you also need to be able to not give a fuck about the fact you missed profit. That is hard, because you are there, sitting behind the computer to make a 100 or 200 USD. You are thinking 10 cents movement = 10 USD. And since your timing is never going to be perfect you will always miss profits. So even if you know you missed some profit. Even if some part of your brain is screaming: nice going dimwit, you just missed 80 USD another part of your brain must scream back and say fuck it, I made some profit and I will continu to make profits, shut up other part of the brain! And that second part of your brain needs to win the shouting match! So you can continue trading and open a new position. And then the entire circus starts again. As you can read, it goes from utterly boring to utterly nerve wrecking.

Why do I do it then?

well, I seem to be decent at it. Within the rules I made for myself I am capable of making a little bit of profit. I don’t find it a pleasant activity to do but the 3.250 USD of profit so far equals 1,5 months of working in Brussels. Honestly, I prefer the day trading over the going to work. It takes less effort, and I don’t need to go to Brussels for it.

It also helps that it is a little extra on the side. I do not do it a lot. As a day job  I think it would be very exhausting. A little bit left and right is very doable. Sometimes I plan on doing some trading one evening and then when the time comes I don’t feel like it, so I don’t. Or the stock doesn’t move right so I stop after an hour. When I was unemployed I put in longer sessions. But even then, sometimes I made a nice profit in the first two hours so I just stopped for the rest of the day (or even week) and was off to do something a lot more fun than staring at a screen for hours.

So for the time being I am going to continue doing it. Hopefully get another 10.000 USD in profits from it over time so I can finish renovating the house one year earlier …

 

 

Tax the middle class, always tax the middle class. Until …

Amber tree had an overview of the latest taxes our beloved government will put at the feet of the Belgian investors. Although this dedication of targeting the private investor is somewhat new, the broader trend of taxing the middle class is not.

Tax the middle class, always tax the middle class

It is pretty logical to tax the middle class. The rich are hard to tax because they can afford to spend money to find ways to avoid taxes (and if everything else fails they can always chose for the nuclear option and relocate to a more favorable country). The middleclass not so much. Spending 10.000 euro on a financial expert to avoid 100.000 euro in taxes is smart. Spending 10.000 euro to avoid a few 1000 euro’s in tax not so much. And the poor, well they are poor. Take away the little they have and you could face open revolt in the streets; And if there is one thing the government want to avoid at all cost it is a revolt (rulers tend to lose their head when Europeans revolt).

So the middle class it has been for the last decades! In those decades labor has been taxed so heavenly that an increase there would actually diminish total tax returns. Consumption too is taxed at its maximum: 21% on most products. Go higher and in a small country like Belgium everybody will start shopping in France or Germany. Since earning money and spending money are out, they are now looking at what is not earned or spend: savings and investments. Looking for ways to tax it and trying to determine the maximum they can tax in that category. I am afraid they have just begun with this exercise. Fortunately for us it will be an exercise in futility.

Until …

It has been my conviction for some years now that the increasing digitalization of our world is decreasing the taxable base for our government. A digital world is also a winner takes all world. As a government you either make damn sure your country hops on new innovations when they starts or you are left with nothing. A real life example to illustrate this point.

Sigarettes. When filter cigarettes came on to the market (the filter once was an example of great technological innovation and created an entire new, bigger market of smokers), as a government, you could afford to be ‘late’ to the party. No matter when you would allow them on your market (either soon after it was invented and commercialized or years later because you had a non-filter tobacco industry you tried to protect) once you allowed it, the follow would happen. Factories would be built in your country, an entire logistics/distribution chain would be created (wholesale – retail sellers) and marketing would happen in your country. Each and ever of those things could be taxed. The only thing you lost by being late to the party was the headquarter and part of the net profit (all those years you waited, foreign brands grew bigger and bigger. Once you allow it, they flood into your country leaving no room for local entrepreneurs to launch a national brand).

Fast forward to the next innovation on smoking: vaping. Being late to the party (as Belgium is because it first did not allow the sale of it and now has a very restrictive law) means that everybody just orders it at foreign web shops. Production, marketing, almost everything now happens in another country and the only thing the Belgian government can tax is the low paid guy in his delivery van who delivers your package at your home. But he is low paid, so taxing him more could lead to revolt. See above why that is a no no. In other words, being late to the party before the internet left you as a government with about 90% of this new market still to tax. Now, it leaves you with nothing to tax.

Digitalization also, in itself has the effect of either shortening value chains or destroying them completely. Renting a movie used to have a pretty decent chain to tax: wholesale, marketing, video shops (called videotheques in Belgium). A lot of parts to be taxed. Now it is Netflix. Same for music, games, banking … pretty soon we will have self-driving cars and instead of having 6 million individual owners to tax our government will have Google and such as an opponent. And Google is a hell of a lot harder to tax than those 6 million individual owners …

So digitalization leaves less parts of value chains to tax. But, and I circle back to the taxing of individual investors, it also increases the possibilities to avoid taxes. Even if you are not part of the wealthy. The internet is a gigantic information database where people share their wisdom. Which means that as soon as 1 person finds a way to avoid a certain tax, everybody knows of it.

I am member of Facebook group about frugal living where each and every day dozen of tips are shared on how to buy stuff cheaper. Remember, every euro not spend on consumption is 0.21 euro of VAT tax lost to the government. My dad, 64 years old, spends his day on cycling forums. As a result he is now buying cycling gear in China. Those new tax laws have not yet been voted and implemented, and already ways of avoiding it are appearing on line.

And if all else fails, the nuclear option is also a lot easier to use than in the past. Relocating has never been easier and cheaper than now. You can find tons of information on the internet. Keeping contact with friends and family in the mother country is easier thanks to social media and popping over the cheapest thanks to cheap flights or buses . All this means that where once you needed a couple of million to make it feasible to relocate, I now think that 1,2 million euro is sufficient. This would give you 24.000 euro a person to live off. More than enough to live a very comfortable life in most places on this world. With a wealth tax that starts at 500.000 euro and a nuclear limit that can be deployed at 600.000 euro that does not leave a whole lot of tax room for our beloved government to tax.

The sad thing is that they know it. But where our videotheques accepted their fate and quietly disappeared (or re-invented themselves as fast-food or mobile phone shops) our government seems to have no interest in slowly fading away. Just like the industrial revolution has come to an end and been displaced by the digital revolution. The government form that evolved with that industrial revolution will sooner or later be displaced. Just look at our history. There was a long time where the land nobility ruled our society. Then the industrial revolution happened and things changed. In most countries they accepted their fate, stepped aside and let progress follow it course. In other countries they resisted and were unwilling to relinquish their power. Those got their head chopped off … Personally I abhor the value destruction that a revolt brings with it. But hey, I am sure you can find the building plans to a guillotine somewhere on the internet….

 

 

To all the nay-sayers

Well, early retirement got some exposure in the Belgian mass media with article’s in Humo and De Tijd. It started with this article by FOB.

Especially the one at De Tijd got the usual nay-sayer comments. Comments we all know not to be correct. So in the name of efficiency and laziness (devote one decent post to it, in future encounters with nay-sayers provide link to this page, done) I put up this rebuttal post.

It can’t be done in Belgium

Most nay-sayers seem to believe that sure, in the USA it can be done but no way it can be done in Belgium! With our high taxes and all …

Sure it is possible. I actually know of two people (one of which was significantly below 40) who did it and a few more well on their way. Some of them even blog about it.

You need to earn a lot of money

Nope. I have only made around the average net wage and I am going to get there around age 47. I even did an additional year of study just for the fun of it (it clearly didn’t result in a high paid job). And made several mistakes. Hell, I have only focused on financial freedom/early retirement for the last two years. I was naturally frugal and started investing as soon as I got my first real job. But still, a better focus would have saved me a few years of working. Actually, if I hadn’t bought my current house 7 years ago I would have probably been financially free now.

In reality, most people who earn lots of money also spend lots of money as they need to wear the ‘right’ clothes/watch, drive the ‘right’ car … Lifestyle inflation is real. And strong among the high earners.

It’s possible if you come from a good (rich) family

Nope again. It helps, that is for sure. Both my parents only went to school until 16. They had saved around 8.000 euro for me when I started working. Yes, one of the guys I know who achieved financial freedom got to live cheaply at a family property. Then again, he has worked for less than 10 years in total. Needing very little money to cover your basic needs is not very motivating to tough it out at a job it appears. Also, he got to live there for cheap because the place was a rundown little farm that hadn’t been renovated since the 1960’s. Since he did a lot of repairs and upgrades to the place, the family probably got the better part of the deal.

You need to know a lot about investing

Thanks to ETF’s (exchange traded funds) with very, very low cost this is no longer the case. Yes, most people trying to achieve financial freedom are interested in investing but that is just because they are the first to realize it is actually possible! Save a good chunk of your pay check, throw it in a decent low cost ETF and you will get there. It really is that simple. No active investment approach necessary.

You need to be lucky with your investments

It does help ;-). The other guy I know off, got lucky with Apple. Good for him. That lucky investment did shave some years of his work career. But that is all it did. He would have still have gotten there. It just would have taken a bit longer. The other guy I know actually got wiped out during the dot.com crisis of 2001 (there was a reason he went to life in an old crappy little farm). I did reasonably well with my investments and avoided the big mistakes. But you know who gets lucky at investments? People who invest. Not investing is the best guarantee to never have any investment luck …

You need to live a very cheap life

Well you need to live below your means. Spending less money than you earn and investing the rest. But frugal living and cheap living are two different things. I didn’t get a car before I was 35 and that did help my savings rate. But I lived in Ghent and worked in Ghent, and then later in center Brussels. Owning a car would have been impractical. I always lived on my own but had several friends who shared a house. So I saved on a car, they saved on rent and utilities. I actually rented a pretty charming little house. I just looked around a lot until I found something with an affordable rent.

And yes, as a guy I hardly spend any money on clothing and furniture. But a friend of mine now even has a side business find cool furniture on second hand sites and markets, cleaning it up and selling it on line. Her house is always full with cool stuff. And she actually makes money of it! Another friend combines vintage stuff with self-made clothes and looks fantastic! Nice furniture or clothes do not need to cost lots of money. I didn’t go on a holiday trip until I moved in with the current girlfriend because I am not big on holidays. But I did buy 60 euro whiskey bottles and even a few above a 150 euro. I also liked to combine Belgian fries and stoofvlees from the frituur with drinking a Taittinger Millesime (it goes together fantastically). We all have stuff we like and value. And that is the essence of frugal living. Only spending money on things that really add to your life and eliminating the mindless spending. And believe me when I say that a lot of your spending is mindless.

It’s also fun to find a more frugal way to get the same thing.

I want nice, quality things

So do I. My current bedroom is a full oak one from Etnicraft. It didn’t come cheap. I bought a Vespa scooter. One from Sym looks pretty much the same and would have cost a 1.000 euro less. Thing is, I only bought those AFTER I got a decent stash of money working for me. I didn’t even have a bed until I was 38 because, well, I am guy and a mattress on the floor served me just well. So nice, quality things are absolutely possible, but only when you actually can afford it.

I wouldn’t know what do to with the time

Really? Are you serious? Honestly, I am bit sad for people saying this. Do they really have that little of imagination? Books, music, series, movies: there is a ton of quality entertainment that exists. Exploring all of that would take me three lifetimes. And that is the passive stuff. Learning new stuff (raspberry pie, maintenance of old timer motorcycles), improving my health (eating better, more sports), travel, organizing classic trance parties, spending time with old friends and meeting new friends … honestly even when I do not need to work I think I will not have enough time to do everything I want to do. Go speak with a pensioner (my parents both retired around 56 -58) and most of them will tell you they are busier after retirement than they were before

I like me job so I do not mind having to work

Great for you! Now are you sure you are going to like it for 45 years? Or perhaps the job/boss/co-workers will change and the job you used to like is now a complete and utter crapfest. You might get fired … Aiming for financial freedom/early retirement doesn’t mean you cannot work anymore. I certainly plan on working after achieving financial freedom. Just not a whole lot. If I stumble upon something I enjoy and it pays all the better. But money will no longer play a role in that decision. I’ll be free to do with my time whatever I want to.

Frugal living: keeping the old timer motorcycle or not?

A little confession and question time. When I was in between jobs (feb – april) this year I bought a 125 cc Vespa scooter (and did some day trading). I am very happy with the Vespa and I am now wondering why the hell I didn’t buy a motorcycle earlier.

The thing is, and this is the confession part, I did. You see, I also was in between jobs roughly a year before. Kinda from sept 2015 till may 2016. Kinda because I only was really unemployed from march ’16 till 1st of may 2016. But I also didn’t really had to work between sept ’15 and march’16 (part of a severance deal with my employer). It’s a long and complex story. And yes, the severance package was finger licking good. Well anyway, during that period I also bought a motorcycle (and did some day trading, yes I am starting to see a pattern here …).
I bought an old-timer. A berini m21 (probably deluxe version) form the 1950’s. It’s a beauty.

 

Berini is a Dutch brand and has some following in Holland but is largely unknown in Belgium. Meaning I got it at a good price: 350 euro. I haven’t really driven the motorcycle as the old breaks needed some work and I put it at a friends place who is an old-timer aficionado. But he is taking his sweet time ….

Anyway, I bought it because I like old-timer motorcycles and part of me views it as a fun pass time once I am semi-retired. Working on it. Learning some mechanical skills. Driving around the country roads here. Perhaps going to an old-timer meet up …. And old-timer motorcycles are a hell of a lot cheaper (especially if you limit yourself to 125cc max) than cars ….

I still like that idea. But with the new job in Brussels and going swimming and still needing to do some renovations at the house, our large garden and such I am not going to have the time as long as I am working full time. I do have plenty of storage space to put it. And it is not costing me anything just standing there.

On the other hand I know I can sell it and easily get my money back. It is 400 euro after all. But then, day trading in 2016 made me 2.455 USD and last Friday I passed the 3.000 USD mark for 2017. If I really want another 400 euro I can easily suck it up and do some extra day trading in the evening. I hardly do it anymore since working again because it is sitting behind a screen and staring at numbers, something I already do for 7,5 hours at my job … But it would also take me time behind the PC to sell it. So spending that time day trading would get me the money AND I would get to keep the motorcycle. And I know that kind of reasoning is a very dangerous slippery slope. It is one of the reasons I am not a big fan of the day trading. It screws with your view on money. Last Friday I made 300 USD in less than 30 minutes. You start getting these thoughts where 100 USD equals a quick in an out trade in Google… But the psychology of day trading is something for another post if some of you are interested in hearing my thoughts/struggles with it.

Back on track for this post. The confession part was that when I do not need to work I seem to buy a motorcycle and do some day trading. The question is, do I keep the Berini M21 or not? Even if I will probably not use it or have time for it the next 5 years?

On investing, being lazy, cumulative returns and scalability

I love investing. Which is good because I believe to be any good at it you need to love it (link). When I figured out my leveraged construction I was ecstatic. If it worked (and it does!) I only needed to do a roll over once a year and be done. It was the ultimate lazy approach to investing and an almost guarantee to beat the market for 4 out of 5 years (backtracking over the last 25 years showed 5 out of 25 years where it would have not worked). So about half way 2016 I really believed my active investments days were behind me. My inner sloth was very happy!

But then, well a curious thing happened. I kept reading financial stuff. ‘Old habit’, I thought. ‘It will tapper out’, I thought. Then I got a bit more active in the whole FIRE community and some people do really cool stuff. And I grew restless. I may not have needed to be an active investor anymore but I really wanted to! You see, it just tickles my brain in all the right places.

My weird mind

My mind likes numbers (I am crap with names, hell, I am bad with people). It also likes to figure stuff out. Find loopholes. Find errors in reasoning. It’s perfect for finding stock that is cheap but shouldn’t be. It would probably be good for shorting too but I rather have the stock go up (guess I rather am optimistic).

I just love to know how a company makes its money. Why it is better at it than other companies.

When I am bored I like to replay old trades in my head. See where I could have done better.

I often use sexual references to describe the attractiveness of a certain company at a certain price point or of a particular ‘cool’ construction. I don’t do it too shock or amuse people. It’s just that this is the connection my brain makes. An attractive young lady in a la fille d’o outfit or writing a nice put option: they have me both drooling. I know this is not normal but that is how deeply imbedded in my brain the investing stuff is. I could be completely, utterly drunk. So drunk that walking or uttering one coherent sentence is completely out of the question. But walk up to me and say ‘coca-cola below 40’ and my slurred drunken response will probably be: write put now.

So I started to dabble with puts and such again. Just because I was bored. Sure, the money is always welcome but I know it will at the very best only reduce the time I need to work with one year. It’s peanuts compared to my overall portfolio. But it is so much fun!

My lazy, lazy side

The other reason I like investing is because you can be very lazy at it and still make the big bucks. If done right it’s a one-time effort for a life time of profit. Do your homework, find an excellent company at a reasonable or cheap price and done. Buy it, hold it, go do something else (except if you have my weird brain).

Now this is a very, very exceptional thing. With almost everything else you need to redo the effort to get the same reward. But not with investing. Actually, the reward can even increase while you do nothing. Most companies try to increase their dividends over time. A 10% increase on a 100 EURO stock gives you a 10 EURO reward. But hold onto that stock for many years and it might increase another 10% when it is worth 200 EURO, giving you a reward of 20 euro! Cumulative returns for the win!

The only thing I can think of that came close to this was the music industry (before the internet and MP3’s). Make a record once and then have income of it for the rest of your live. For most of us, becoming a successful music artist is out of grasp. But ETF’s provide a good way to all of us to profit of this unique aspect of investing.

This makes for some truly ‘fun’ consequences. My first real job was at a telecom operator. My total wages there for those 6 years will have been around 144.000 euro (around 1.800 euro a month but holiday money, 13month and profit bonus ..). With savings averaging around 500 a month this means I saved 36.000 euro in total. Add in another 12.000 euro I was able to save from my severance package (a story for another post). And my total savings for that time are 48.000 euro. Investing this sum at a 7% average return will have this amount double every 10 years. Give it 20 years and it should become 192.000 euro. Deducting the original investment from this means that my investments on my savings from that job will equal my TOTAL pay I ever made at that job! The higher your savings rate and the higher your return rate, the less years it will take for your investments to eclipse the total wages of the job! If that prospect doesn’t excite you and gets you investing I don’t know what will.

Scalability

The last great quality of investing is that it scales so easily. Investing 10.000 euro or 100.000 euro takes the same amount of effort. It’s just typing in an additional zero. Yes, there are some limits where having to deploy too much money can become a hindrance. But you are talking about hundreds of millions of euro’s before you start encountering  that issue. And even then it depends on how the stock market in general is doing. When the overall market is setting record after record (like now) it may be difficult to deploy large sums of money at favorable returns. But for us, small time investors, for all practical purposes the scalability of investing is limitless.

I love scalability. I wish that housecleaning or doing the dishes was scalable!

I find we do not talk enough about scalability and cumulative returns in the FIRE community. This whole early retirement thing is, in my mind, only possible thanks to the combination of these two powers. Savings also have a certain scalability to it. Once you have developed the savings ‘skills’ you soon discover you can apply that skill set on a wide variety of items/events. And savings also have a certain cumulative return where making a saving in one area often has knock on effects in other areas. Buying a hair trimmer and no longer going to the hairdresser saves money. But it reduces your car use, thus unlocking additional savings in gas cost and wear and tear on your vehicle. It also frees up time which you can use to find additional savings … But savings alone is not enough. You then have to invest these savings so they can benefit again from the cumulative returns of the market. Both of them together is what enable you to achieve financial freedom.

Get yourself a will!

There is one thing I haven’t read a lot about in the financial freedom community. And it’s lack is a bit strange since it is about money and is probably the biggest wealth transfer you will ever handle. It is the need for a will. EVERYBODY should have a will. NOW!

Contemplating one’s own mortality might not be the most ‘fun’-activity to do but it is something that needs to be done. Personally I am hoping that when the time comes my consciousness can be transferred to a giant robot who will then go on to play a crucial role in the battle to save earth from aliens. But that doesn’t mean I have no need for a will!

A well thought out testament will not only lower the tax burden for those you chose to leave your earthly belongings but might also prevent fighting among them. In my own family it took three years to wrap up the last of the inheritance issues after the dead of the last grandparent!

DIY

The quickest and easiest way is to write one yourself. You can find examples all over the internet and if it is a simple and straightforward affair this might suffice.

Get a professional

But once property, an investment portfolio and such are added in the mix it might be best to employ the services of a notary. It is usually not that expensive (a couple of 100 euro) and they know what is possible within the law and how to best phrase it to avoid any discussion.

Since our politicians are contemplating a big change in Belgian succession law it might be best to wait until the new law is published before paying a notary. But this shouldn’t stop you from thinking this over and already writing your own testament. The better you are prepared before visiting the notary the cheaper his services will be.

Revise it every 5 – 10 years

We got ours the day we moved into our jointly bought house and officially registered at our community as living together. The one thing we forgot to take into account is what would happen when we both died at the same time. Since the girlfriend is my main beneficiary and we both live in the same house and often travel together that possibility definitely exists! (The girlfriend does not accept the giant robot scenario, even when I showed her it could be a cute robot, grr women!) If there is a realistic possibility that your main beneficiary can die at the same moment as you, you should write out this scenario also.

But it has been 7 years since we wrote our testament. Our assets have grown considerably and a new nephew has been born in that time. So a new testament will be drafted at the notary as soon as the law has been changed. We always considered this testament as ‘good enough for the next 5 years of our life’. Once you have a will it is best to revisit it every couple of years and see if changes are necessary. For small changes the do it yourself approach will suffice but for big changes a new visit to the notary might be best.

Have a talk

Another thing I would like to stress out is the need to talk. Like the old publicity of the KBC –rightfully-  claimed: talking works! Explain why you want certain things the way you want them. Your will should not contain any surprises for anybody! In the case of a will, a good surprise for somebody often means an unpleasant surprise for somebody else. Also try to avoid to ‘rule from beyond the grave’. Know your limitations! Trying to determine how somebody should use the money you gave him/her is a waste in futility and can cause problems in your family for decades to come. You are dead, stop wasting your time with these mortal issues and learn to play the harp or avoid the pitchfork 😉

 

How I keep up with the news

Well that is simple. I don’t really. I have got the log in from a friend for the gopress database and once a week I catch up with De Tijd (the Belgian financial newspaper). Reading it with a delay reduces the time necessary to be caught up significantely. Because, when you read a weeks old newspaper you quickly realize how much is utter drivel not worth your time to read at all.

I am not alone in this. Mr money moustasche has a great post about it. He calls it the low information diet. The magazine Humo had an article about it a few weeks back. My parents still have a subscription on it. They keep them and when I visit I take a bunch of them with me. The girlfriend reads them. Since there is always one lying about at the toilet I might leaf through it when I didn’t remember to bring my smartphone with me.

The reason I do this is not to save money but purely to improve my quality of life.

The news is hardly news anymore. It is a lot of speculation about what might happen or what might be the consequences of what just happened combined with a lot of opinions about what happened, or why it happened. At best, reading this is just a waste of time. At worst it will annoy you and sour your mood for a few hours or even a few days (some Belgian politicians have developed an unique talent to deliver in 5 second soundbites such complete and utter ridiculous proposals that any sane person needs a week to just barely regain some of his mental capabilities).

Since the news hardly contains any worthwhile information. It wastes a lot of my time with other stuff that is not news and in most cases delivered information that had no impact on my life or I couldn’t change even when it does impact my life (short of leading an armed revolt to topple the EU leadership and found the Republic of the Sloth, all hail the sloth!). And on top of that it annoyed me more often than not! So I stopped reading newspapers, magazines, watching the news …

This doesn’t mean I do not read or get new information. But now this is on my terms and for subjects I find interesting or will improve my life. Informative sites or blogs about finance and technology mostly. Some fun things on boredpanda or a fun/absurd thread on reddit. Basically I want to either be informed or entertained and the internet can provide both of these in spades at no cost. The classic media offers very little of either and then has the guts to charge money for it! One wonders why they are in trouble …

It’s personal

Last Saturday was the third meet up of belgian/dutch people who strive for financial freedom.

It was the second I attended (missed Antwerp due to illness) and very glad I could make it. Always great to meet like mined people. contrary to my girlfriend some of those attending do not fall asleep when I am talking about options!

I also gave a presentation. I’ll make it available to download here.

Financial freedom in Belgium2

It is part a condensation and part an elaboration of ideas and numbers in these three posts on my blog:

The really short version is that instead of aiming for full financial freedom I only aim for partial financial freedom. Some work will still be necessary. My practical side limited that work to the tax free amount of 7.400 euro since that is the easiest money to earn by working. My stash will cover the remaining 12.000 euro I am going to need to live a full year.

What I did not do fully elaborate on is the reasons why I chose this path.

Some are practical:

  • it’s more tax efficient, swapping work that is taxed at 50% for work that is taxed at 0%

some are personal:

  • my age, I will already be 47 when I achieve this for both me and my partner; achieving full financial freedom would take 7 more years. I would then be 54!

But the main reason is that for me this whole financial freedom is about happiness. Trying to live life on your own terms. Having the freedom to pursue personal interests and projects.

When working full time I simply do not have enough time to do this. Hell, I should do a lot more sport to get my weight down and my general fitness up. But that would mean almost no time to relax in the evening. And I like relaxing in the evening!

But working only 3 months a year or 1.5 days a week will give me the time I need. Not only to do more sports but also to pursue my interest and passions. Having even more free time than those 9 months will not add a lot more happiness to my life. But getting those 9 months years earlier than the in the fully financial freedom scenario will.

The way I see it, is that financial freedom should not cover everything. It should only cover the basics. For the rest you can still work, put in some effort. With some luck, you might even be able to earn some money pursuing your passion thus eliminating the need to work for an employer completely.

I have seen a lot of people on the moustache forums falling prey to the ‘one more year’ syndrome. People with a big stash who still keep working ‘one more year’ because they are afraid the stash will not cover every imaginable future cost. Planning to do some work eliminates this fear. Then your buffer is not an ever larger stash but just working a bit more when unexpected costs appear. For instance: my calculations use the tax free amount of 7.400 euro a year. But due to my mortgage deduction I can actually earn 9.600 euro tax free a year. That 2.000 euro I can earn extra every year would mean 50.000 in stash I do not need to earn before ‘pulling the plug’.

A lot of people on the forums also earn money once ‘retired’. Just look at Mr. money moustaches wife making enough with her Etsy shop to cover both their basic spending. Off course this income was not predictable. But the fact that you will have SOME income is predictable. Even if you do not yet know how you will earn that income. Mr. money moustache had his carpentry skills to fall back to if some additional income was necessary.

In Belgium 7.400 euro is the easiest money you can earn. Since this will only take around 3 months to earn and thus leaves me plenty of time to pursue my own interest it is the basis for my calculations.

This basis will probably be different for everybody. Just like not everybody will plan on spending only 18.000 a year. some will be ok with only 6 months of not having to work, others will want to spend 24.000 euro a year (or more). That is what makes it personal finance. But do take some future income into account in your calculations. If done right you will still be relative young when the basics are covered by the stash. You will want to do SOMETHING. Wasting extra years at a job you do not like or postponing projects, passions until the stash is big enough to cover every imaginable and even unimaginable future expense is in my book foolish. The alternative: to plan some work after ‘retirement’ is a lot better since it will allow you to pull the plug on the full time job years earlier and will give you the flexibility to handle unexpected costs if those should ever arise.

Why I do not like money

It might come as a big surprise from somebody aiming for financial freedom and being a very active investor for the last 17 years of my life but I do not like money.

A lot of money gets you nowhere

Now money is a pretty nifty human invention and excellent as a medium for exchange. Very practical indeed. But as a store of value it is useless. Amassing a lot of money will get you nowhere.
The reason is pretty simple. The value of our money is the future strength of the underlying economy (or at least this is the case since we have abandoned the gold standard). This why the euro, usd is worth something and the Zimbabwe dollar or Venezuelan bolivar not. Those last two countries barely have an economy left with no future change expected. As a consequence the value of their currency has evaporated.

Having your currency backed by the whole of your economy is not a bad thing (it is a hell of a lot better than it being backed by gold) but the thing is that it is by default backed by your ENTIRE economy. All of the great companies in your country, but also all of the bad, money losing companies. And a huge amount of non-profit (either by design, or involuntary) entities. Which means that if amassing a lot of money is your goal you are going to remain squarely in the middle of the pack. I do not do packs very well.

What I like is to own shares in excellent international companies, preferably with a big moat so they will remain an excellent company for a long time and with pricing power. Pricing power means that inflation is something you do not need to worry about. And international so that even if the government of your country thinks that a Venezuela or Zimbabwe policy is something worth following, the company will be fine.

Simply put, if you were a Venezuelan who had little to no bolivar but instead had your wealth in shares of Coca-Cola, life would still be good (due to rampant crime you would probably have moved some years ago, but at least you would have had the means to do so).

Even simpler put: money is the equivalent of a photo of a beautiful woman. It’s the woman you should be chasing, not the photo. I mean, Draghi is printing 60 billion new photo’s every month. But he is creating 0 excellent companies … have a guess what is going to happen with the value of that excellent company?

That is why I am fully invested at all times. It is why I do not own any bonds and will never own any. It is also why I want to amass as much shares as possible. And it will be with great pain when I will need to extract some cash from them when I stop working. The two years of cash I will hold when pulling the plug is solely due to the volatility that is unavoidable when you have a system based on fiat money.

A little side note about the gold standard

A lot of people do not like money because it is fiat money backed by nothing tangible like gold. They think a return to the gold standard would solve most of our problems.
It would solve one problem: volatility (and even then, volatility also happened when the gold standard was in place, countries too can be stupid in the capital creation department). Because the value of your money is backed by the future strength of your economy as a whole and this future strength is uncertain you do get some volatility in the value of your money. Most of the time this volatility is pretty low (since it is the whole of the economy) but in times of crisis this volatility will experience a big uptick. It is then that the proponents of the gold standard (or goldbugs) make their appearance.
Unfortunately, it would create a lot of other problems (like a lower growth but also a lot lower progress and innovation of society as a whole). You see, it is a good thing that we have fiat money. It is a very good thing that there are institutions (mostly banks) that can create new money based on nothing more than a future repayment promise. Without this a wealthy elite would most definitely control the world and the return they would demand for investing in a smart idea or business opportunity would be a hell of a lot higher than the current interest rates. If they would want to invest at all …. Since they are already very rich, backing a young ambitious person is not a very attractive proposition (it just creates more competition for a limited amount of capital), the exception being off course if the young ambitious person is family (or willing to marry into the family). Though luck for all those smart people not born in the right family….

As a society you will advance a hell of a lot faster when there are several commercial entities capable of backing future aspirations of smart, young ambitious people by ‘creating’ the necessary capital. The downside is volatility and financial crisis now and then. The root cause of these is that to much money is created which does not create an equal or bigger value than the capital employed. For instance the dot com crisis. Here too much capital was poured into companies who failed to achieve the necessary cash flow to justify all of the capital they had consumed. Or the 2008 financial crisis, where the promise for future repayments on mortgage loans turned out to be a whole lot lower than anticipated. The 2008 financial crisis was big enough to have an impact on the whole economy, so it had an impact on the tax revenue of countries. Which then actually translated in a second crisis. A sovereign debt crisis: countries who had borrowed too much and whose future repayment capacity was not big enough to service all their debt. Greece, Spain, Portugal, Italy (France, Belgium) … The thing is, a crisis that is limited to the private sector is pretty easy to solve: you let a whole lot of companies go bankrupt. Investors loose the capital they so foolishly deployed and the world can continue turning. Applying the same recipe to countries as a whole is a lot more painful. So you lower interest, you prolong the duration of the loans and you start printing a whole lot of extra money to replace the money that is now tied up in non-performing loans to countries that will never be able to repay that debt. This way, you can pretend that the money is not actually lost. The net result of this is that everybody who holds that money (euro’s in this case) will, in some way, absorb some of the losses of those non-performing loans. No idea if a better solution exists, but it does make me want to have as little as possible money and as much as possible shares in excellent companies.

Why I do not like dividends

Since the dutch-belgian meet-up is upon us tomorrow I thought it a good time to throw a stick in the chicken coop (this is actually a litteral translation of the dutch saying: ‘een knuppel in een hoenderhok gooien’, the English equivalent would be ‘to stir the pot’).

You see, contrary to a lot of other finance bloggers I do not like dividends. I would even go as far as to say I hate dividends and have been trying to avoid them as best as possible for my entire investing time.

There are two reasons for this. The first is taxes.

The taxman cometh

Tax on dividends in Belgium is currently 30% and if you happen to own foreign shares you will most probably be taxed twice: once in the country where the company has it’s headquarter and once more in Belgium! So for me dividends of Royal dutch shell will be taxed 15% in the Netherlands (that is after I fill in some paperwork to lower it! Ugh, paperwork!) and then what is left will be taxed at 30% in Belgium! So a dividend of 100 euro gross will end up being only 59,5 euro by the time it hits my account. That is a 40% total tax level. I prefer my companies to keep this money and invest it themselves thus avoiding all this tax nonsense

Laziness

The second reason is laziness. Finding good companies at an attractive price is not easy. Shortly after the 2008 – 2009 financial crisis you had your pick of top quality companies at bargain prices. But over the years prices have risen. Once more, you need to look at a lot of coal to find a diamond. That is a lot of work. And my name is not financialfreedomSLOTH because I like working! I find it much more pleasant if the company I invest in would do this in my place. They are usually a lot better placed to do it.

– By doing this they avoid taxes. As said above: if Royal Dutch shell pays a dividend I could only have 59,5 euro after taxes to invest. Which means their rate of return can be lower than mine and still produce the same value for me!

– They also have economy of scale. Finding a good company to invest in takes a lot of work. But once you have found a good investment opportunity investing 2.000 euro, 200.000 euro or 2.000.000 euro does not take a lot of extra effort. (There is sometimes a little bit of effort to avoid influencing price and illiquid stock can put a limit on the amount that you can invest but this is easy to avoid by only looking at companies of a certain size).

– Private equity investments are also possible for them.

– They have the best knowledge of their own sector. If market size is too big to acquire additional companies within their sector they can always look at their suppliers and clients. Here again they have an information knowledge advantage.

It is the reason I like holding companies and within them absolutely love Berkshire Hathaway!

Other stock I like mostly for option plays. Buy it by writing a put, then sell it with some capital gains by writing a call. All of which is tax free in Belgium! Dividends are then something that sometimes happen by accident (like the time I held Coca-Cola shares just when they happened to pay out a dividend, doh!).

Profitable minority

I know I am in a very small minority with this (and I might change my approach once I achieve financial freedom). But it has been a profitable viewpoint up until this point.

A small anecdote on how being too focused on dividends may cost you money. Years and years ago I noticed that the price of Artwork systems (a small, local software company) would fluctuate. It would go higher when the dividend was near and then reach a low point about 6 months later. This was because it was a very small stock, nobody followed it and liquidity dried up. But the swing in stock prices was more (almost 2x more) than the dividend paid. And liquidity near the dividend date was also higher! So I accumulated a position in the down months. Sometimes being the only one in the market, my bid price became the market price. Ooh, fun times! And then when the dividend approached and liquidity returned I sold it all before the dividend was paid (let somebody else pay those taxes!).

Since the general assembly was in the same city I lived in at the time I even went to it and explained why I would prefer them to keep the dividend and use their profits to turn Artwork systems into a holding company! This was against my direct financial interest but my long term wish to be as lazy as possible won over my wish for short term profits. I mean, all that buying and selling (sometimes 5 or 6 trades In a single year, in a single stock!) was very tiring 😉

The president of the board explained to me (in a somewhat belittling tone) they had no interest becoming a holding and the other shareholders almost skinned me alive (how did I dare to threaten their sweet dividends!!). The next year I visited again, kept my mouth shut and just got very drunk on the excellent champagne they provided for their shareholders. Even smuggled one bottle outside under my coat (there can be other advantages to being a shareholders). It was one of a very few times I was truly and completely drunk!

A year later my very profitable strategy came to an end as artwork systems was bought by Esko, which was at the time owned by Axcel A/S a Danish private equity investment company. This private equity firm used the profits of Artwork systems to build out their graphics group and then sold the complete group to Danaher, which is for all intense and purpose a holding company …

Through all of this, the president of the board stayed on …

Danaher is a public company and pays a dividend. Perhaps I should go and try to explain my viewpoint again? Does anybody know what quality of champagne they serve?

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