I could leave it at that chart, which is a chart of the S&P 500 (specifically the Vanguard 500 Index) over the past seven years, but I’ll delve deeper. I have to first admit that I am biased. I work at an investment firm who focuses on market timing, which is as close to the antithesis to buy and hold as you can get, so I am constantly surrounded by proponents of timing.

What is buy and hold? According to Wikipedia, “Buy and hold is a long term investment strategy based on the concept that in the long run financial markets give a good rate of return despite periods of volatility or decline. This viewpoint also holds that market timing, i.e. the concept that one can enter the market on the lows and sell on the highs, does not work or does not work for small investors so it is better to simply buy and hold.”

Often, the same people who advocate investing nearly all your portfolio in an index fund and leaving it at that (you can read my rebuttal to that approach here) also are fans of buy and hold. However, even one of the most well known investors who has preached the buy and hold strategy in the past has this to say:

“In a USA Today interview some years ago, Warren Buffet was asked what he thought of the “buy & hold” strategy as a viable strategy for the less sophisticated stock market investor. He said in short that it was absurd. He went on to name a long list of companies, most of their names were household words, whose stock price had collapsed 20 years ago and had yet to recover.

He summed up his warning to would-be buy & hold investors as follows. If you want to buy and hold stocks, you had better have a buy & hold portfolio. He went on to explain that unless you had real bargains to begin with in your portfolio, the odds of time making you whole were low at best.”

Source: http://www.worldchiropracticalliance.org/tcj/2002/oct/oct2002l.htm

I do believe that certain buy and hold strategies can be successful, but this involves much more than simply buying a stock that you like at an arbitrary date and holding it forever.

Personally, I just have a hard time swallowing the fact that it is impossible to predict where the market is going. Two weeks ago, when my company’s indicators started pointing to market volatility, news headlines were screaming about credit and mortgage concerns, and a large number of stocks were hitting new lows, they started moving more of their portfolio into cash. On the two days the Dow dropped several percentage points, they were nearly 40% in cash. At certain points in the bear market at the beginning of the century, they were a full 100% in cash.

It is just hard for me to watch the stock market plummet day after day, to see all the signs that the market is weakening, and yet let my stocks sit there and take a beating.

It is true that if you time the market badly, you can hurt your portfolio even worse. Buy and hold supporters are fond of saying how if you missed 5 months of the best days in the stock market over two decades, you would have lost several percentage points worth of gains to your portfolio. Of course, you would have to be pretty terrible at market timing to miss five entire months worth of gains.

Earlier this week I was spending my last evening at home with my family, which includes my younger, twenty-one year old sister who just graduated from college. She was using her laptop to check her bank account when she noticed a charge from the United States Postal Service for $54.10 from two weeks ago.

She knew she had been to the post office on that date, but at first couldn’t remember what she could have gotten for $54.10. Then, she remembered buying a ten pack of 41 cent stamps. Yet the post office had apparently added $50 to the charge.

She immediately became outraged, frustrated and depressed. I didn’t blame her either. The post office employee had apparently charged her an extra $50, either out of error or with a malicious intent by getting $50 cash back for themselves.

After trying to calm her down, my first question was whether she had the receipt. She said no, but again I couldn’t blame her, as I wouldn’t have kept a receipt for a $4.10 purchase either. I then asked if she remembered actually signing the receipt for that amount, but all she could remember is the clerk telling her it was a total of $4.10.

I have to admit that I had to bite my tongue at this point. What I really wanted to ask her was why she was using a debit card in the first place. As I’ve mentioned before, I personally find debit cards way too risky. With all of the issues I have had in the past with incorrect charges to my credit card, I shudder to think how I would have felt if those charges were immediately deducted from my bank account. I’ve had enough issues with deductions from my bank account already, thank you very much!

It was especially problematic for my sister as, being a recent college graduate, as she only had a hundred or so dollars in her account and was worried about checks bouncing. She started searching for her bank’s phone number, in order to start the process of getting her money back. At this point, my father casually mentioned that if it wasn’t an accident, the clerk may have just used cash back to take $50 for himself.

My sister stopped dead. A guilty smile formed on her face, and she said “Um … I just remembered, I got $50 cash back.” My relief over her not actually losing the $50 overcame my disbelief at her having somehow completely forgotten about this small detail, and we had a nice laugh about it. My father and I both put away our wallets at this point, as we coincidentally were both about to give her $50 to help her feel better about the whole ordeal.

The lesson of this story still holds true though. I consider debit cards to be a dangerous form of transaction. If anything, credit cards give the consumer a great deal more protection, as well as giving them more power when it comes to negotiating questionable charges. It is well worth learning the challenges of controlling spending habits for all the benefits a credit card offers.

Well, the past couple weeks sure have been an interesting ride. I was on vacation, and only had slow, limited access to financial news. So imagine my horror when I find that the bottom fell out on two of my stocks, Jones Soda (JSDA) and The9 (NCTY). In fact, Jones Soda fell so much that my automatic 20% loss stop order was placed for me, preventing me from feeling the full impact of the stock’s drop to $10. Good to know those work – thanks Zecco!

Since my last update, I have sold Fuel Tech (FTEK), Loop Net (LOOP), Jones Soda (JSDA), and The9 (NCTY). Part of this was trimming my portfolio due to the volatile market, and part was selling stocks that had weakened dramatically.

Like most investors, I am still unsure of where the market is heading, and am listening closely for advice from the advisory newsletters I subscribe to. For now, I am holding some extra cash in my portfolio and waiting before buying any new stocks.

Gain as of 08/07/07: 2.1%
Gain of S&P 500 for the same funds: -0.1%
Current Cash Held: 28%
Bought: None
Sold: Fuel Tech (FTEK), Loop Net (LOOP), Jones Soda (JSDA), The9 (NCTY)

I returned a day early from my vacation in Michigan to stay at my parent’s house in Shaker Heights, Ohio. During the downtime, my wife and I took a quick look at houses in the area. While we know it will be at least a few years off before we save enough for a down payment, we were curious what houses outside of the Boston area cost.

First, a quick overview of Shaker Heights, Ohio. A few years ago it was ranked the eighth wealthiest zip code in the nation. It has a well renowned school district, known for its extremely high college admittance rate (percentage of students who graduate and continue on to college), as well as its great success with integration (nearly half the student body is African-American). It has a very low crime rate, and is twenty five minutes from Cleveland’s city center (including an option for mass transit). It also sports a large number of parks and a handful of mile-long lakes.

In other words, it’s a really great place to live. So let’s take a look at a house that my wife and I visited this past Sunday.

It has four bedrooms, three full baths, and one half bath, with a total of 9 rooms. It has a 0.5 acre lot with a circular drive, a two car garage, and central air. It has a sprawling upstairs and refurbished basement. We loved it. The house is $240,000 for 3000 square feet, or $80/square foot.

The closest comparison to a suburb where we live, north of Boston, is Danvers, Massachusetts. It also has a solid school district and low crime. The town has some really beautiful places to live, though it is somewhat more of a mixed bag in that respect than Shaker Heights. It is also closer to an hour commute to Boston.

Here is the closest priced home we could find in Danvers, Massachussets:

It has three bedrooms, one bathroom, with a total of 6 rooms. It has a 0.25 acre lot with no garage and no central air. The house is $300,000 for 1300 square feet, or $230/square foot.

These two examples are not extremes; in fact, they pretty much represent the averages of not only these two communities, but of living outside Cleveland compared to living outside Boston. A house near Boston is literally three times as expensive as a house near Cleveland.

To be fair, I should mention that real estate taxes are cheaper on a house outside Boston. The Shaker Heights house has about $8000/year in taxes, while the Boston house has about $5000/year in taxes. This example is slightly skewed in that Shaker Heights has one of the highest school tax rates in the country (neighboring communities, which are similar to Shaker, has much more reasonable tax rates).

So, you can live in one of the top ten richest areas of the country, Shaker Heights, for one-third the cost of living in a median income town near Boston. This is not even including other items which effect the cost of living. According to BestPlaces.net, living outside Cleveland, OH is 36% cheaper than living outside Boston, MA.

The question remains: Why live in Boston compared to Cleveland? This is cue for most people to smirk and chuckle and say “But it’s CLEVELAND!”

If there is one thing I have discovered in living in four different cities and three different states over the past few years, it is that nearly every suburb in America is the same as the next. Turn the corner and you will find a Best Buy. Drive in the city and you will find an array of museums, shows, and sports games. Pack your clubs in the car and find a golf course within a few miles.

If that really is the case, then you are left with three major reasons: Because of the people, the jobs, and the specific place you live. We currently live near Boston because my wife’s family and friends are here, and that we made roots here during college. I have a great job that I enjoy going to every day. Lastly, we rent, so while we feel the sting of higher housing costs, it’s closer to double (instead of triple) what we would be paying monthly in Ohio, and we’re also free to leave any time we wish.

I have to admit that as I start to think more about raising a family, and realizing how higher a standard of living I could have paying saving 2/3rds on my mortgage costs, places like Cleveland (or anywhere besides the San Francisco, New York, Boston, and Hawaii) begin to look very appealing.

I will leave you with what I found to be an absolutely hilarious example of how ridiculous real estate is priced in this area:

A one bedroom, one bath, 480 square foot house for $189,000, or nearly $400/square foot.

Just a quick note to say that I am leaving for a small lake cottage in Michigan on a family trip, and won’t be returning until early August. See you then!

I tend to be fairly frugal with most day to day purchase. I avoid eating out too much, limit myself to one Dunkin Doughnut’s coffee per week, and put lots and lots of thought into any purchase above $25.

Of course, all of that goes out the window when it comes time to buy gifts, whether it is for a birthday or a holiday. This time of year, it’s for birthdays, as my wife, father, and sister all have birthdays within a few weeks of each other. I am usually able to control myself when it comes to gifts for the family; while I really wanted to get my father a Logitech Harmony remote for $75, I limited myself to some unique tea for $15 I picked up from Chinatown.

Unfortunately, the amount I can spend on my wife knows no bounds. I’m not talking thousands of dollars here, but I still have had issues with spending more money on gifts or outings than I probably should. For example, earlier this year I bought my wife a pearl necklace, bracelet, and earrings to celebrate her getting a new job. A month before that I bought her a new digital camera, after feeling guilty that the one I bought her for Christmas turned out to be such a dud.

(The funny thing is that my wife is one of the most non-materialistic people I have ever known. While she appreciated the pearls, and loves using the camera, she would never expect any of those as gifts, nor would she buy them on her own.)

The heart of the problem for me, and I suspect many of you out there, is that money spent on gifts often falls into a murky category, an odd combination of money you might feel required to spend (though I would hate to compare birthday presents to a electricity bill) and money that actually feels good to spend because you know it is going to make a person close to you feel very happy. I am especially guilty of the latter feeling.

So when my wife turns 25 tomorrow, I will be taking her to a restaurant with entrees about double the price I would normally spend, seeing a movie (a somewhat rare occurrence for us nowadays, as we found that an easy way to save some money), and buying some smaller gifts. While I somewhat regret not having a gangbuster present to give her this year, we’re in a somewhat cloudily financial situation right now with her looking for a new job, and I also have spent a fair amount on gifts so far this year.

Not to mention the fact that my car is currently in a shop, racking up literally $1.60 a minute on labor charges as “Honda specialists” attempt to figure out a problem with my air conditioning that no one else can. I’m sure I’ll begrudgingly post a final tally for the cost of that work when I found out tomorrow.

I posted about a month ago that I made my first real-money investment by purchasing a single share of a company called BE Aerospace (BEAV) for $38.05. Since then, the stock has risen 14.35% to $43.51. If only I could set that as the bar for all future investments, then I would be all set!

I now have a portfolio consisting of nine stocks, listed below. As you see, I probably have 1/1000th of the average amount invested by a person in the stock market. Nevertheless, I am having a blast with it, and am saving every penny I can so that I can have more to invest. For example, I made an update a few days ago about selling some old games on eBay. As soon as I got that money, I put half into my emergency savings and half into this investment account.

Gain as of 7/19/07: 6.6%
Gain of S&P 500 for the same funds: 1.7%

For the moment, I wanted to look at Jones Soda (JSDA).

This was a stock pick for my company before they sold it near its high. As you can see, it had a huge run-up before dropping steadily for a few months mostly due to fears of it being overvalued.

However, the strong financials of the company remained. They faced some negative press that hurt the stock further, such as the fact that Starbucks would no longer carry them. Yet it was soon revealed that Starbucks only accounted for about 1% of their sales!

I have tried Jones Soda a few times and really do believe it has the ability to carve out a nice niche in the soda market. However, it currently comprises about 3.3% of my individual stock portfolio, and I wouldn’t feel comfortable with having more than 5% in a stock that is still so bruised and battered from the past few months.

In the beginning of the year, my wife and I moved from Pennsylvania to Boston’s North Shore. When we started looking for apartments, we prepared ourselves for the inevitable higher cost of rent that we knew existed in Boston. Unfortunately, we still weren’t able to steel for some of the outrageous monthly rents we saw!

We lived in a suburb about thirty minutes outside of Philadelphia, where we paid $930 a month in rent including heat and water but not electricity. We had a very nice sized one bedroom apartment. We were moving to a suburb thirty minutes north of Boston. The average monthly rent we found for a similar apartment was $1500, no utilities included.

We were both stunned. We knew that housing costs were more expensive near Boston, but this was more than 160%! In fact, we couldn’t find a single acceptable apartment that didn’t cost more than $1350.

At first, we almost considered paying those prices in order to live in some of the apartment complexes we were shown. They looked as if they had been built the day before, had very well maintained grounds with modern fixtures and spacious layouts. What was unbelievable was when we checked some of the reviews for these complexes online. We read horror stories about shoddy construction (including noise issues) and unfriendly staff. So not only would we be paying a very expensive monthly rent, but we would have these apartment issues to deal with as well!

At this point, we had been searching for apartments through websites like Rent.com and Apartments.com. These only returned apartment complexes, and 90% of the time showed prices 20% lower than the complex was actually charging – most likely as a way to get people in and convince them to spend more money. So instead we turned to Craigslist.org, which also showed units for rent in shared houses.

We were thrilled. Within a few minutes of searching, we found seven or eight renting possibilities all for $1200 a month or less. Some of the apartments renting for less than $1000 had more square footage than units at the complex which rented for over $1600!

What were we losing by not renting through a complex? Not much. We did not rent from the shared houses where the landlord was rude, unfriendly, or seemed unhelpful. Our current landlord actually lives beneath us and responds to maintenance requests very quickly. We missed out on some of the perks like a gym membership, but in saving hundreds of dollars in rent per month are able to afford $35 a month for Gold’s Gym.

We also have the benefits on living outside a complex. Our landlord lives beneath us, so we don’t share walls with anyone. Parking is directly outside of our unit, which has a private entrance. There is much more of a neighborhood feel living than an apartment complex (we’ve found people in apartment complexes to often completely keep to themselves). Plus, living in an actual home makes it feel more like, well, home!

So I urge anyone looking to rent in the near future to look into the option of an apartment outside of a complex. While there can be a few disadvantages, the advantages can often outweigh them, and save you a large amount of money at the same time.

When driving home from work the other day, I noticed my air conditioning was blowing hot air (well, not hot, but definitely nothing close to what I would consider cold).

“There goes another $100″, I thought. For me, car repair falls into the category of emergency expenditures (not including planned maintenance) that you just have to bear and grin – at least to a certain extent. I have always tried to research the best place to take my car to for repairs. Yet sometimes even that doesn’t help. For example, a few months ago I spent nearly $500 on repairs to my car’s tires and batteries, only to have the same problems arise a few months later!

So recently, I started looking instead into fixing the problems myself. There are two issues with this. First, I am not what you would consider “handy.” My father is, and my wife is, but when it comes to fixing anything that isn’t a computer I get stumped pretty quickly. Secondly, I know next to nothing about cars.

Nevertheless, I did some research online on how to troubleshoot air conditioning problems. I soon found out that the problem would most likely be due to low Freon. No problem!, I thought. Just go buy some Freon and fill it back up, much like adding some new wiper fluid, right? (Adding new wiper fluid and air to my tires are probably the only two car maintenance solutions I know how to do).

Wrong. From what I read, you really have to know what you are doing when refilling Freon, as it’s very easy to add the wrong amount. In fact, anyone who knows how to add the right amount is apparently referred to as a “Freon specialist.”

Defeated, I brought my car to a repair shop this morning and agreed to pay $69.95 plus whatever the Freon cost, which averaged about $25. I then received a call a half hour later telling me my cabin air filter was completely clogged and it would cost $90 to replace. Put on the spot, I just told the place to go ahead and do that.

That decision I slightly regret, as I found out that while the filter does indeed cost the $45 I was told, it looks like replacing it was just a matter of opening the glove box and replacing a piece of plastic.

My air conditioning problem has now turned into a $230 expense – I added an oil change on for $22, which is yet another operation I could most likely learn to do myself. Still, I have to admit that paying around $50-$200 per year to not have to hassle with my car isn’t the worst money I have ever spent.

I decided recently to get rid of some “stuff.” Now it’s odd that I should have stuff only a few months after moving, considering how much “stuff” I got rid off. However, in an attempt to un-clutter our lives a bit, I have loosed my definition a bit of what I would define as stuff. For example, I recently purchased an Xbox 360 (which I plan to return this weekend, but that’s another post). In doing so, I realized it would be very unlikely I would play many of my old Gamecube or Playstation 2 games. So I decided to sell them.

This also coincided nicely with my attempt to investigate eBay as a means for a side income. Nearly every eBay guide and book I skimmed recommended selling your own items first, so that’s what I did. I wasn’t completely new to eBay – I had sold and bought about 15 items over the past few years – but I had really approached it as a method of income before.

I started with collecting the ten games, and creating an auction for each. This was a bit more time intensive than I originally anticipated. Even though you can put in the game’s name (or ISBN) and have eBay add all the game details, you still have to put in all the various fields such as game condition, price, shipping, and of course the actual auction details. I wouldn’t be surprised if there was more of a way to automate this, but I couldn’t find it initially.

I also had to spend a bit of time researching the average price for the games, as some sold for $4 while others were $25. Anything that constantly sold other $5 didn’t seem worth the effort to me. Also, I wonder if I had started all the auctions at $4.99 if they would have eventually reached their market value naturally through bidding.

In any case, after three days my auctions ended and I had winning bids on eight out of the ten games. Now I had to package, label, and ship all of these! I had charged $5 for shipping, which was the average for games and also what I guessed the priority shipping would be.

One of the best benefits I found to shipping priority via USPS is that you can get the boxes for free. This may not sound all that special, but the cheapest envelopes I could find to ship games in that would adequately protect them were about $0.60 each. Using free shipping supplies therefore saved me $5 on my auctions.

When it came to actually mailing them, I first mailed one game “manually” by going to the post office and getting a receipt to find out the approximate weight of the game. Then I went home and used Paypal to print out multiple layouts. I have to say I was amazed with how quickly I was able to pay for and print eight labels. This whole process, including packaging the games, took about twenty minutes.

I was also able to go into the post office at 5:00 the next evening, stroll gleefully past the twenty person line, and drop my packages off at the front desk.

Was it worth it? Absolutely. I got rid of clutter and was paid about $100 to do so. I did realize how much effort goes into selling though. I also ended up paying a fair amount of fees in one form or another (Paypal, eBay listing, eBay final value), but I couldn’t see any way to make as much money as I did for the same amount of effort.

Inspired, I decided to pull out my plastic and sign up for a trial of Salehoo. Salehoo is a website which provides tools to research wholesale product providers. A large amount of auctions on eBay are from people who buy large quantities of items from a wholesaler and sell them marked up on eBay to make a profit. I did about an hour or two of research on ways to find these wholesalers, and found Salehoo to be one of the most often recommended sites. They had an 8 week money back guarantee trial, so I figured I would give it a shot.

So far, I have to admit I am a bit pessimistic about the whole thing. I spent, again, about two hours researching for products to sell. I tried maybe twenty, ranging from iPhone cases to tennis rackets to small porcelain dolls. I not often usually found the exact same item from the wholesaler, but it was selling for the same price as well! Meaning the seller either had a better wholesaler, or was making their profit through shipping.

I didn’t expect this to be an easy, get rich quick deal, but I hoped to find at least one product hopeful in a couple hours of searching around. I may try a bit more, but right now I am more inclined to cancel the trial and instead focus on other income alternatives.