YOLO

YOLO = You Only Live Once

What does it mean to you?  It may mean many different things to different people.  But when I was speaking with my son about his view on it he said that he interprets it the way it’s meant by the rap artists (that frequently use this in their lyrics or communication with their fans).  YOLO means do what you want NOW, or in simpler terms: have the quality of life you want now instead of waiting until _______ (fill in the blank).

This is kind of neat but (the but had to be there), if I felt that way about cake and ice cream (I love sweets BIG TIME) I would be very round, probably would get type II adult diabetes and die from some sort of heart failure or just have a miserable life while I aged (perhaps) happily in the midst of my favorite cakes and ice cream.

I am also a big fan of fast beautiful cars and have been guilty of buying (or leasing) some very extravagant foreign makes (my last was a hard top convertible cabriolet, black on black, with a “kompressor" aka orgasm on wheels).  What the experience of owning those cars taught me was the fact that owning them did not make me any better or happier with my life.  It simply taught me that they were “HIGH MAINTENANCE”.  In essence I spent soooooo much time worrying about them getting scratched or damaged, also they broke down (despite the assurance that these cars were indestructible), the repairs and routine maintenance cost 5 time of a regular vehicle.  So what was the result of me living once? I was spending my discretionary income on maintaining my high maintenance cars!  My cars were the high priced toys that owned me!

YOLO can be better interpreted by assessing the reality of economics and marketing.  Once you realize that you only live once and your life should probably be spent doing something you view as important and valuable (something you love doing).  So instead of spending your life BUYING what the marketing professionals are selling you or more to the point, PAYING OFF what you bought, you could focus on the less tangible pursuits. 

A few years ago, I reassessed my life style and my objectives.  One of the major discoveries was the fact that (with my personality) having F-You Money was important.  Next I realized that my home and my cars should not be liabilities (in other words I should not be spending more time and money on them then I do on my family and my self).  I downgraded from a house with a pool and a huge back yard to a beach condo without a yard but huge grounds with ponds and pool, a gym, and a spa.  From my (toy) sports car I downgraded to a practical silver SUV crossover (with 30+mpg).  These changes allowed me to spend more QUALITY time with my family and save more money by buying stocks, ETFs and other investments.  MY YOLO translated into having more money (I happen to be a pretty good portfolio manager) and having the ability to focus on the people that really mattered to me.  Having a smaller home and a less impressive car had absolutely no negative effects on my image.  I was still as attractive to the opposite sex, still had my friends and was able to make new friends just as easily.  Go figure!

What’s your YOLO?

College degree, post graduate degree, student loans… Where do I start?

As with anything you have to start at the beginning.  As a kid I thought of becoming a doctor or a lawyer because those professions (even in the former communist culture of the USSR) were perceived as prestigious and desirable.  Well, my reality was defined by choices I made in high school and the overall economic capabilities of my family. 

After immigrating from the former USSR to New York, my Mom and I were poor (on public assistance) and I qualified for free lunches and breakfasts for that matter at my high school.  To make my financial and educational future just slightly more complicated (as it wasn’t already) I had a baby at 17 and 10 months (I was almost 18).  Still I wasn’t going to drop out of my career path to becoming a lawyer, three days after having my Son I went to college.  I went to St. Johns University government and politics undergrad program.  My first semester of school was challenging.  The reality of my situation finally hit and I had to drop out in my second semester to take time off to focus on “single parenthood” and on running a business.  Yep, I started a company that allowed me to be somewhat financially independent and allowed me support my Son and Mom.

Let's fast forward a few years, I had a group of friends who were successful professionals in various industries.  The ones I admired the most happened to be in finance and accounting.  They helped me determine that I would go back to school and get a degree in accounting.  Admissions in St. John’s were helpful and worked with me to get me re-admitted and get started on an accelerated track to completing my undergrad.  After one semester in Accounting (and speaking to a number of kids in that program) I changed to Finance.  I completed the program in 2001.  Before graduation I worked with the career center to get interviews with company that hired from St. Johns and was hired by a department in the U.S. Treasury to be an agent in the international banking division.

My education cost me about $55,000 (including living expense and books) and my first year on the job I was making about $45,000 (federal agent = government salary).  Not too bad considering I was learning a lot about banking and finance on the job!

However, I wasn’t a lawyer or a doctor.  What changed?!  Well, I had to be responsible and needed to get on a career track that could make me money right away.  If I followed law or medicine I wasn’t going to have the same opportunities after my undergrad program, I would need to go to a law school or a medical school.  My Mom wasn’t going to be able to support me since I was really supporting her and my Son.  So my reality was to get into a career that allowed me to start working and making a reasonable living right away.

If you are a kid or a parent, take a look at your “economic reality”.  Are you able to support a 7 year (undergrad and post grad) education track?  What should you make once you graduate (check salary info on BLS.gov the link is listed in references below)?  What are your annual expenditures for basic needs and necessities?   What will your tuition cost?  What will your student loan responsibilities cost once you graduate?  Assuming your education is an investment.  What should your return on investment be?  These are important questions that can be asked before you apply for a student loan and get into obligations beyond your financial capacity or reality.

By the way, I have had a successful career in banking and finance and have been doing great managing my own investment portfolio.  Living from pay check to paycheck is not on my radar. Nor should it be on yours.

References:

College Costs can be found here http://collegecost.ed.gov/catc/Default.aspx

Tamar Lewin, 6/2011, What’s the Most Expensive College? The Least? Education Dept. Puts It All Online New York Times retrieved from http://www.nytimes.com/2011/06/30/education/30collegeweb.html on 4/25/12

Salary data from the BLS: http://www.bls.gov/oes/current/oessrcst.htm

Take a look at our budgeting related blogs with sample budgets.

Race, Education and Financial Health

How are the three interrelated?  Here is my experience of their relationship:

The recent events of Trayvon Martin’s case have raised the questions of race, profiling and gun control laws.  My initial reaction was very selfish and paradoxical.  My son is 16 and a half and half black.  One of my hobbies is shooting with handguns and skeet with a shotgun. 

About two weeks into the coverage of the Trayvon Martin Case I reached out to the local news and asked them to do a story that would show how certain prejudgments / stereotypes are outdated.  I told them that interviewing my son and I would provide a great example.  My son is a well educated, mannered and rounded teen but because he loves skittles and can time to time wear sports clothes he may look like a “typical young black male” to strangers.  I am a blond in my 30^th with Bachelors in Finance and Masters in Accountancy and over a decade of experience in complex banking and finance matters and long success in personal portfolio management.  However, to those who don’t know me I look like a ditsy blonde in her 20th.  Therefore, my Son and I are A-Typical, at least based on the old stereotypes.

Back to the interview, which consisted of a series of questions that provoked good conversation but what actually made the news was cut down to hardly comprehensible commentary.  Still our images made it to TV and hopefully presented an alternative to how a black teen/ young adult might look and behave.

One of the key questions that was asked and I guess the news reporter was determined to get an answer to was: “Is it unfair that many black teens are being asked by their parents to act WHITE?” My son’s response was simple, yes it is unfair.  People should not act differently just to blend in.

My answer consisted of the grown up reality: There is no such a thing as acting “WHITE”.  One can behave and look as an educated, well mannered and economically secure member of society regardless of his or her race.  And through my professional and personal experiences I’ve encountered plenty of people who were professional, well mannered, and in great financial health who were NOT WHITE.  At the same time, I’ve met plenty of WHITE people who were not well mannered, were not well educated or were in good financial health.

So this issue of acting WHITE is a misrepresentation.  Perhaps, a well meaning misrepresentation.  In my motherly opinion I think raising your kiddo with a clear understanding of how people think about image and behavior is key to being a parent.  One of my favorite books is “Influence- Psychology of Persuasion” by Dr. Cialdini because it very simply explains the basic nature of human behavior and the “shortcuts” we all make based on someone’s appearance/image.  So the current stereotypes for young black male, particularly those that model the images of the popular black rap artists are pretty sad and negative.

On the other hand, we all know that what we wear at home, to the pool, the beach, or a nightclub is not appropriate to wear to a business meeting or a funeral.  It’s really that simple.  But it begs the question: Does wearing a different set of clothes make you or me a different person? Of course not! 

Back to acting "WHITE or BLACK", in the case of acting “BLACK” there maybe a misconception that what rap artists portray in music videos is or should be the authentic image for a young black male.  However, the reality is that these rap artists also know as professional (professional = get paid for what you do) entertainers have to project a certain rebellious image (to sell their music).  They are paid to behave this way and to project a certain set of values and even to sell products and services (you know how most song lyrics mention brand names of products or services).  But as the old saying goes: “If so and so jump off the bridge will you jump as well?”  The same applies to what young people wear for fun and what they should wear to meetings or to go to more official occasions.   In other words, similar to the way a parent can explain to their teen daughter that dressing in very revealing clothes may get her a lot of negative attention,  a parent could (and should) explain that by wearing certain clothes and accoutrements a young man may project the wrong message.

This may be perceived as a shortcut is to make these boys “act WHITE” or make them look and behave a certain way that doesn’t allow them to express their individuality.  However, that is simply a reality for everyone in society.  Unless you are famous and independently wealthy you have to “play along” with the societal prejudgments. 

The more difficult and important long term objective is to overcome the stereotype assigned to young black men all together.  This has to begin at home.  Parents of young black boys have to focus on encouraging doing well in school (math, writing, science, college education, and financial education), reading beyond the required school curriculum, financial responsibility.  Parents can accomplish this by being role models through responsible behavior at home.   Additionally, there are many black men who are successful professionals like President Obama, Mr. Combs, JayZ, Mr. Woods (I know the moral issues are there but no one is perfect), and many others. 

In conclusion, parents should realize that stereotyping in not only tied to race, age, gender, or the general appearance.  Stereotyping is something that occurs subconsciously and there are simple shortcuts to help alleviate their affects.  However, our goals have to be focused on long term shift of stereotypes to make future generations of kids less likely to be perceived a certain way just because they looked a certain way.

 

Resources:

Dr. Cialdini’s official website http://www.influenceatwork.com/IAW-Home.aspx

Maynard Institute 2012 Black History Month http://mije.org/features/black-history-month-2012?gclid=CM-X5tLVvK8CFecSNAodtX8bwQ

Our interview http://www.news4jax.com/news/Local-Mom-teaching-kids-about-profiling/-/475880/9750790/-/brve9tz/-/index.html

Conspicuous Consumption Part 1

We tend to spend money to show how successful we are to the outside world.  Marketing professionals use this tendency to develop “images” for products they want to sell us.

As an example, a top of the line Mercedes Benz shows the world how successful and rich the owner of the car is (or must be) because in the advertizing the owner/driver of the car are usually well dressed and appear to carry themselves with authority furthermore we know how much such a car costs.  He/she must be doing well financially to be able to have such a car!

And so a wonderful cycle of product image development and “sell” is created:

1. A consumer with the (subconscious) desire to show everyone how “well” I am doing.
2. Marketing specialist has a Mercedes Benz to sell.
3. A long term campaign and pricing strategy is developed to show everyone who would drive/consume this product: “Successful, Good Looking and Rich”
4. Our consumer in step 1 buys the Mercedes Benz.

What’s funny is that the reality of this purchase on the consumer is that he or she just bought a quickly depreciating “asset” (using straight line depreciation, over 5 years @ about $20,000/year).  Furthermore, they impacted their financial condition for the worse because now he/she has that much less to spend on their daily needs or investment objectives.  Also, they are still the same person they were prior to owning the Mercedes Benz, realistically the car (no matter how wonderful the engineering) did not change the consumer into the “imaginary” hero seen in the advertizing campaign.

I would be curious to see examples of implied value you can identify by looking at what you consume every day.

Reading list:
Thorstein Veblen, Conspicuous Consumption, 1902  http://www.fordham.edu/halsall/mod/1902veblen00.asp

Three Simple Steps before Your Marriage

#1 Get an outline for your future!

First it is important to agree that you envision the same goals for your future.  For example, both of you really want to live _____ fill in the blank.  You will have kids in ______ fill in the blank.  Create a plan of how you’ll stay healthy.  Discuss your physical preferences and health issues openly.  You certainly do not want to miss out on years of wonderful sex life.  Incorporate other ideas that make you feel great about being together.  I am sure there will be many!  Once you finalized them put them into a Strategy/Common Goals Document.  It’ll be fun to revisit every so often :o)

 #2 Get your money matters figured out!

What is your current net worth individually?  Both of you will work or just one of you. Your money will be individually managed or will you have combined accounts?  Have a conversation with a lawyer or an experienced financial planning professional individually or together to understand your legal and financial risks associated with a very unlikely future separation.  See our video blog on the benefits of Pre-Nuptial agreements: http://www.youtube.com/user/NeizvestAcademy/videos

Have an open conversation with each other about what your concerns might be.  Keep everything in perspective: “money conversations” before marriage will save you from future trouble that could cause a separation or a divorce.  According to a New York Times article frequency of disagreements about money had a direct correlation with the likelihood of divorce (Rampell).

 #3 Get your wedding planned!

When you plan your weeding remember that it’s just one day out of a lifetime of wonderful celebration of your love.  So don’t go broke and don’t over stress.  Reality is, someone has or will have a better wedding!  You can do something lovely, tasteful and fun with out spending half of your savings. 

My opinion:  Weddings are to celebrate your marriage and have a fun time.  You should get clothes that make you feel hot and comfortable.  Find a destination/place that will help you be comfortable.  Invite only the people that matter to you now.  As you go through years of your marriage you will have many opportunities to celebrate your success and happiness in follow up “anniversary” weddings where you can say your “I Do” over and over again.

Reference:

Rampell, C., 12/07/2009, Money Fights Predict Divorce Rates, New York Times, retrieved on March 30, 2012 from:

http://economix.blogs.nytimes.com/2009/12/07/money-fights-predict-divorce-rates/

A couple of my favorites:

Frankel, L., May, 10 2005 Nice Girls Don't Get Rich: 75 Avoidable Mistakes Women Make with Money http://www.amazon.com/Nice-Girls-Dont-Get-Rich/dp/044657709X

De Angelis, B., June, 14 1993.  Are You the One for Me?: Knowing Who's Right and Avoiding Who's Wrong
http://www.amazon.com/Are-You-One-Me-Avoiding/dp/0440215757

Options Strategies: ILMN & AMZN

Here are some sample options strategies on two stocks, which show what happens under various types of options scenarios. The two underlying stocks are ILMN and AMZN.  For this exercise, I pulled daily options quotes from CBOE.com http://www.cboe.com/DelayedQuote/QuoteTable.aspx

Before you consider playing with options be sure you know when they expire! Here is the 2012 expirations calendar: http://www.cboe.com/AboutCBOE/xcal2012.pdf

Basics:  When you trade options contracts the standard contract size is 100 (options- calls or puts)

 Strike price is the price on the face of the option. 

Uncovered Option - A type of options contract that is not backed by an offsetting position that would help mitigate risk. “Trading naked”, as it is called, poses significant risks. However, an uncovered options contract can be profitable for the writer if the buyer cannot exercise the option because it is out of the money.

To translate this Jargon: uncovered or naked option is when you don’t own the stock or a commodity but you sold a call or a put contract.  You can also be uncovered when you buy a put, which will give you the right to sell a stock or a commodity at a strike price, when it’s higher then the current price of the stock.  Buying an uncovered put is not risky because you will almost always be able to buy the security at a lower price and will be able to resell it to the put writer at the strike price.

Out of the money options are those that have a strike price that is too high or too low making them worthless before they expire.

Here is an example of writing uncovered calls and puts:

Uncovered Calls and Puts
ILMN	Expiration in March		Max Risk Exposure
Close on 3/10/2012	50.12
Close on 3/16/2012	49.93
	Call @ $50	Put @ $50	Call @ $50	Put @ $50
On March 3/10/2012	0.6	0.35
Expired un-exercised Gain/ (Loss)	60	35
If called on the 16th	n/a	7
Gain/(Loss)	60	28	unlimited	4,965
AMZN	Expiration in March
Close on 3/10/2012	184.32
Close on 3/23/2012	195.04
	Call @ $180	Put @ $180	Call @ $180	Put @ $180
On March 3/10/2012	5.35	1.21
Expired un-exercised Gain/ (Loss)	535	121
If called on the 23rd	1,504	n/a
Gain/(Loss)	(969)	0	unlimited	17,879

You can see that because ILMN did not fluctuate before the expiration date the writer of the hypothetical call and the put earned 60 and 28 dollars respectively.  Here is how it worked: It would not make sense for the holder of the call to exercise it because the strike price was $50, which is higher then $49.93 (the stock closed before the expiration date).  On the other hand, the holder of the put contract could have exercised the put and made the writer buy the stock from them at $50.  The assumption is that the writer would turn around and sell it at $49.93, thus losing $7 on 100 shares.

This table also shows the possible loss in the even the underlying stock went up.  When it comes to calls the possible loss is really unlimited.  On the other hand the loss on puts is limited to the multiple of the difference between the strike prices on the put and the close price of the stock before expiration.

Now in the example with AMZN you’ll see that the stock jumped from $184 to $195 in 12 days.  Also, you’ll notice that due to this change the options did not expire on the “expiration calendar date” but continued to trade through the 23^rd.  The writer of the call ended up loosing $969, because they had to sell the stock to the call holder at $180, while it was trading at $195.  But because there was a profit from the original sale of call options was $535 the loss was not the full $1,500.  Put expired unexercised because the strike price was lower then the close.

An uncovered bull call spread is constructed by buying a call option with a low exercise price, and selling another call option with a higher exercise price.  Often the call with the lower exercise price will be at-the-money while the call with the higher exercise price is out-of-the-money. Both calls must have the same underlying security and expiration month.

Uncovered Bull Call Spread
ILMN	Expiration in March
Close on 3/10/2012	50.12
Close on 3/16/2012	49.93
	Buy Call @ $50	Sell Call @ $55
On March 3/10/2012	0.6	0.15
Expired un-exercised Gain/ (Loss)	(60)	15
If called on the 16th	n/a	n/a
Gain/(Loss)	(60)	15
Net Gain/(Loss)	(45)
AMZN	Expiration in March
Close on 3/10/2012	184.32
Close on 3/23/2012	195.04
	Buy Call @ $180	Sell Call @ $185
On March 3/10/2012	5.35	0
Expired un-exercised Gain/ (Loss)	(535)	225
If called on the 23rd	1,504	(1,004)
Gain/(Loss)	969	(779)
Net Gain/(Loss)	190

This is a strategy will work if the stock is expected to go up beyond the shorted (sold call option strike price).  You see that because ILMN did not move very much the investor would have lost $45.  They let the call contracts bought for $60 expire and the written call contracts sold for $15 expired unexercised.

An uncovered bull put spread is constructed by selling higher striking in-the-money put options and buying the same number of lower striking in-the-money put options on the same underlying security with the same expiration date. The options trader employing this strategy hopes that the price of the underlying security goes up far enough such that the written put options expire worthless.

Uncovered Bull Put Spread
ILMN	Expiration in March
Close on 3/10/2012	50.12
Close on 3/16/2012	49.93
	Sell Put @ $55	Buy Put @ $50
On March 3/10/2012	4.54	0.35
Expired un-exercised Gain/ (Loss)	454	(35)
If called on the 16th	n/a	7
Gain/(Loss)	454	(28)
Net Gain/(Loss)	426
AMZN	Expiration in March
Close on 3/10/2012	184.32
Close on 3/23/2012	195.04
	Sell Put @ $185	Buy Put @ $180
On March 3/10/2012	3.1	1.21
Expired un-exercised Gain/ (Loss)	310	(121)
If called on the 23rd	n/a	n/a
Gain/(Loss)	310	(121)
Net Gain/(Loss)	189

As you can see, this strategy worked well in both scenarios but was particularly successful for AMZN because of the drastic change in price.  In other words the naked puts written went on unexercised and puts purchased cost less then the gain.

Uncovered Short Call Butterfly

A short butterfly position will make profit if the future volatility is higher than the implied volatility.

1. Sell 1 ITM Call
2. Buy 2 ATM Calls
3. Sell 1 OTM Call

In The Money (ITM):

1. For a call option, when the option's strike price is below the market price of the underlying asset.
2. For a put option, when the strike price is above the market price of the underlying asset.

Uncovered Short Call Butterfly
ILMN	Expiration in April
Close on 3/10/2012	50.12
Close on 3/16/2012	49.93
	Sell Call @ $45	Buy 2 Calls @ $50	Sell Call @ $60
On March 3/10/2012	5.6	2.16	0.26
Expired un-exercised Gain (Loss)	560	(432)	26
If called on the 16th	(493)	14	n/a
Gain/(Loss)	67	(418)	26
Net Gain/(Loss)	(325)
AMZN	Expiration in April
Close on 3/10/2012	184.32
Close on 3/23/2012	195.04
	Sell Call @ $175	Buy 2 Calls @ $185	Sell Call @ $195
On March 3/10/2012	13.44	6.8	2.95
Expired un-exercised Gain (Loss)	1,344	(1,360)	295
If called on the 23rd	(2,004)	n/a	n/a
Gain/(Loss)	(660)	(1,360)	295
Net Gain/(Loss)	(2,020)

In this situation the combination worked against the investor in both scenarios.  Max Profit = Net Premium Received - Commissions Paid.  Max Profit is Achieved When Price of Underlying <= Strike Price of Lower Strike Short Call OR Price of Underlying >= Strike Price of Higher Strike Short Call.

Here are references used for this summary:

http://www.theoptionsguide.com/short-butterfly.aspx

http://en.wikipedia.org/wiki/Butterfly_(options)

http://www.investopedia.com/terms/i/inthemoney.asp