How Much Should You Keep in Your Emergency Fund?

Mar 24, 2015 -

An emergency fund is an allotted amount of money that you've saved for a rainy day. This means if you lose your job or incur a significant one-time expense, you'll be able to weather the storm and survive financially.


You might think the more you have saved for your emergency fund the better it is. Well there lies the dilemma. Too much saved and you are foregoing the investments you could have made with that money. Not enough money in your emergency fund and you run the risk of running out of money when an emergency arises. 

"The general rule for an emergency fund is to save anywhere from three to six months of living expenses." 

Saving your money in an emergency fund is similar to that of paying car insurance. The best way is to take a portion of your paycheck and set that amount aside for the emergency fund. But, where do you cap out? How much is too much?

While how much you decide to ultimately save in your emergency fund is a function of your risk toleration and income to expense ratios, the general rule is to save anywhere from three to six months of living expenses. If you have a family to support or people who depend on you financially, you might lean towards the six months versus the three. 

The best way to determine how much you should save in your emergency fund is by asking yourself if you lost your job, how long would you be without one. In some industries, it may take a couple weeks to find another job. In others, it can take up to a year. That would be your basis from where you would determine how many months you need to save up for. If you have multiple streams of income, the likelihood of all of them failing to produce is lower than just any one stream coming to a halt. Therefore, you might have a higher tolerance for a lower emergency fund. 

Ultimately, how much you decide to put in your emergency fund is how comfortable you are with the worst case scenario occurring (losing all revenue streams) and the probability of that happening. If you have a high risk tolerance and believe there is a low probability of you losing your income streams, then you can have a lower emergency fund. On the contrary, if you are the opposite, then you should have more money in your emergency fund.
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Three Questions to Help You Get to Really Know Someone Better

Mar 17, 2015 -

In How to Win Friends and Influence People, Dale Carnegie recounts a story involving Abraham Lincoln and his old neighbor. Lincoln had some problems that he wanted to discuss with his old neighbor. For hours, Lincoln talked about his own opinion on the issue and arguments for an against issuing a proclamation freeing slaves. At the end of it all, Lincoln shook his neighbor's hand and then without even asking for his opinion on the issue, sent his neighbor back to Illinois. Lincoln wanted what most of us want when we are in unfavorable situations. He wanted to vent to someone who would be friendly and sympathetic. Lincoln didn't want advice at all.

In order to be a great conversationalist, be an active listener. Ask them questions and encourage them to talk about themselves and their accomplishments. At the end of the day, people are more interested in talking about themselves or their own interests than yours.


Here are three questions that can help you get to know someone better.

1) For what in your life do you feel most grateful?

If you are grateful for something in your life you are appreciative. Whether it is a person, place, or experience, the thing you are most grateful for at some point made or continues to make an impact on your life. Being grateful for something also helps you understand what you value most in life. Is it fame and fortune you are seeking? Or do you value the simple life?

2) If you could change anything about the way you are, what would it be?

Accepting who you are is a big part of becoming a more resilient person. With societal pressures looming in every corner, being comfortable in your own skin can sometimes be a challenge. Ultimately we are who we are because of our experiences including how we were raised. One reason why you would want to change the prior experiences is because it is still affecting your present or will have an effect your future. Just understand that there is always a trade-off. You can't be a party-animal free spirit and also be a quantum physicist.

You can make more friends in two months by becoming genuinely interested in other people than you can in two years by trying to get other people interested in you.

3) What does friendship mean to you?

Adding a friend on Facebook is as easy as clicking a button. We so often casually refer to people we know as friends even if we've only met that person once! However there are differing degrees of friendship. Those that you recognize and will say hi to on the street, but wouldn't reach out to on a daily or weekly basis. Then there are others who you spend more time with and see more often. When they've hit a rough patch in their life, you are there to comfort them and console them. Who are your closest friends?
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Book Review : How to Invest Your Time Like Money

Mar 11, 2015 -

About Elizabeth Saunders, Author of How to Invest Your Time Like Money


Elizabeth Saunders is the founder and CEO of Real Life E, a time coaching and training company, that helps individuals achieve more with less stress. She has trained and coached clients on six continents and contributed to numerous publications include Time and Forbes, Inc. She has also appeared on television networks such as ABC, CBS, and NBC.


Many of us struggle with managing our time. We've tried a number of things to become more organized such as to-do-lists, planners, and even allocating a 80/20 approach where by we spend 80% of our time on the most important things and 20% on more tedious mundane tasks. The bottom line is, we are still stressed. How can we invest your time like money?

"You don't understand. I'm an entrepreneur. I have deadlines I need to meet, and I can't just check in and check out." 

What is great about it?
The first thing Saunders talks about is getting your mind in the right mindset. In essence, empowering yourself to take responsibility for your time investment choices instead of blaming others. What she means by this is managing your own workload. If it means lettings others know that you don't have the capacity to work on their projects or instead of doing their work for them you show them how to fish.

How to Invest your Time like Money is a guide to allocating your time so that the most important things get the most attention instead of getting pushed aside for other competing priorities. Sanders does a great job of providing real examples of how to accomplish this.

One of the major reasons why we feel we need to do so much is because we don't want to let other people down. Or we fear how people might respond if you actually did start to have our time investment under control. Being comfortable with having others forgive you for past mistakes and freeing yourself from guilt is the goal.

The author does a fantastic job providing a number of "harmful" and "helpful" key mental shifts in a tabular format. For example, a harmful mental thought would be if you felt like you needed to take advantage of every opportunity for fear that you would miss out on something important. That can be extremely stressful given that it is nearly impossible to do. On the contrary, a "helpful" mental shift would be one of investing in the best opportunities to be successful. 

Saunders goes through a checklist of actionable items that help in determining your time budget, calculating expectations time cost, identify your time debt, and make cuts. She guides you through figuring out what are your crucial time commitments in a day such as sleep, work, commute, side projects, etc and assigning an allotted time for each. If all of that exceeds 24 hours, you'll need to pare down that list. You do that through determining your priorities. If you value relationships more than business, then you might have to take time away from the business area and allocate to relationships. Focus on big ticket items that will save you hours versus saving minutes here and there.

One of the most interesting concepts Saunders brings up is the idea of "layering". Similar to chunking and multi-tasking, layering is the idea of doing task that require different channels of mental functioning at the same time such as tidying up and then listening to an audio book.

Here is a key excerpt from Chapter 3: Create a Base Schedule:

"Strategic time allocation takes intention, practice and discipline, but the results can feel like a dream come true. In this chapter, we'll go step-by-step through how to create an ideal "base schedule." A base schedule includes all the essential elements in your typical week, such as sleep, recurring tasks, and exercise, but its purpose is threefold: First it helps you see how what's most important to you fits into your weekly schedule. Second, it allows you to clarify how much discretionary time you have to allocate to non-recurring meetings, activities, or projects. Third, it makes planning much easier because most of your schedule is set and you only need to do additional planning for day-to-day or weekly variations (both of which we'll cover in the next chapter."

What is the not so great about it?

Like with most books, the value is in taking what we read and putting in it into action. Otherwise it is just another idea or concept we understand. Saunders does a great job of providing actionable steps to managing your schedule and truly taking control of your time allocation. In fact, just reading it made me feel more at ease. After reading the book, you definitely feel as if you now have a legitimate plan of action to tackle all of your tasks.

On top of working a full time job, I run two side businesses, this blog and contribute to the community through a volunteer organization. Like you, my time is crunched and I'm constantly worrying about this thing or the other. I digress, but the point is all of this information is great, but unless you take the time to implement it, that all that it is - information.

One of the biggest gripes I have with books that say that they can help you manage time is that my argument is that rather than managing time, we are really managing our energy. There is enough time for most things we want to do in the day, but we might not have the energy to do so. When you come back from a nine to five job, you just want to relax. The last thing you want to do is work on more work even if it is a side business. How do we manage our energy?

What is your final recommendation?
Get this book. I said it before and I'll say it again. After I read this book, I felt like I could take hold of my time and allocate it appropriately. The author does a great job of guiding you through what is needed to create a base schedule and then helping you prioritize. Now, it may not be all handed to you on a silver platter and you may need to do some work yourself, but the guidance is there.

To all the workaholics, I'll leave you with another quote from the book.

"As I sat in the first session, I listened to individuals who had worked at their organizations for 10, 20, or even 30 plus years, explain their situation. I will never forget the dejected looks on their faces and the enormous, heavy sense of betrayal and regret. These individuals had sacrificed their health, their friendships, their families for the sake of their work. Then when they had no longer had a place on the org-chart, they were dropped.

What I took away from my experience and theirs was the importance of remembering who really loves you. Unless you work in a family business, the people you work with don't love you. Yes, they may care about you. But in the end, their primary interest is in getting a certain job done. They'll be sad to see you go if you move on, but soon another person will take your place."

Conclusion: How to Invest your Time like Money is a recommended read for those who seek to better invest their time like money. After all, your time is your life. Use it wisely. 
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Lessons from Warren Buffet's Berkshire Hathaway 2014 Shareholder Letter

Feb 28, 2015 -

Quick Lessons from Berkshire's 2014 Shareholder Letter 

Notable Information
Berkshire's competitive advantage in the insurance business is their 12 consecutive years and counting of underwriting profit. The profit increases the company's float - money that doesn't belong to Berkshire, but can be used to invest for Berkshire's benefit. Essentially this is interest free leverage.
Recent service failures at BNSF have led to disappointment among its customers and thereby led BNSF to set aside $6 billion for property, plant, and equipment in 2015.

Berkshire continues to purchase companies. Most notably, the Duracell acquisition is scheduled to close the second half of 2015 and the company is still contracted to buy Van Tuyl Automotive (group of 78 automobile dealerships with $9 billion in sales)

Subsidiaries of Berkshire have also been the benefactor of bolt-on acquisitions in the aggregate of $7.8 billion in 2014 spread across 31 bolt-on acquisitions.

Through company share repurchases programs, Berkshire's ownership percentages in American Express, Coca-Cola, and Wells Fargo have increased 0.6%, 0.1%, and 0.2%, respectively. Berkshire purchased additional shares of IBM increasing their ownership percentage from 6.3% in 2013 to 7.8% in 2014. A one-tenth percent increase in ownership of the "Big Four" investments, increases Berkshire's portion of their annual earnings by $50 million.

Warren Buffet has suggested that his son Howard Buffet succeed him as non-executive Chairman in order to keep the culture of Berkshire alive. A crucial characteristic of Berkshire CEO is one that must be "all in" for the company and not himself or herself. The CEO job is primarily of capital allocation with a selection and retention of managers in the subsidiaries. Furthermore, investment specialists in Todd Combs and Ted Weschler would would help the CEO in evaluating acquisitions.

“In the short-term the market is a voting machine; in the long-run it acts as a weighing machine.” Occasionally, the voting decisions of investors – amateurs and professionals alike – border on lunacy.

Diversify Your Income Stream
Should Berkshire's insurance industry sustain a loss of $250 billion or triple that of the highest historical loss, it would be able to weather that loss and most likely record a significant profit due to other streams of income. Now that is some powerful earning power.

You Will Make Mistakes
Not everything works out as planned. For a while, one of Berkshire's largest common stock holdings was in Tesco. It was also one of the few large foreign Berkshire investments that made the disclosure. A series of accounting problems and margin issues eventually led Warren to exit out of the leading food retailer in U.K. Fortunately for Berkshire, the after-tax loss was only $444 million or about 1% of the company's net worth.

Holding Cash is More Risky than Holding Equity
Without a doubt stock prices will always be far more volatile than cash-equivalent holdings.

Below is an excerpt taken from 2014 Berkshire's Letter to Shareholders -

"Over the long term, however, currency-denominated instruments are riskier investments – far riskier investments – than widely-diversified stock portfolios that are bought over time and that are owned in a manner invoking only token fees and commissions.

Our investment results have been helped by a terrific tailwind. During the 1964-2014 period, the S&P 500 rose from 84 to 2,059, which, with reinvested dividends, generated the overall return of 11,196%. Concurrently, the purchasing power of the dollar declined a staggering 87%. That decrease means that it now takes $1 to buy what could be bought for 13¢ in 1965 (as measured by the Consumer Price Index)."
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Five of the Best Budgeting Tips to Save Money

Feb 24, 2015 -

Not enough money? Learn to budget the right way.

When you budget, you are asking yourself to spend no more than a specified amount typically on a per month basis. How much money you bring in will play a part in determining how much you should be spending on shelter, food, and personal activities/products.

The first step towards setting an attainable and realistic budget is determining your spending baseline. Gather all of your credit card and bank statements and categorize all of your spending for the last six months. Once you have all of that organized you can start setting budget targets.


Suppose you already spend $200 on gas a month. The primarily contributor to your gas spending is fuel for your commute to work. In order for you to make money, you will need to drive to work. Therefore, to set a budget of $100 a month on gas is completely unrealistic. Unless you can start taking public transportation or ride your bike to work, you are better off cutting your spending elsewhere.

Now let's say you currently spend $200 a month on clothes. Yes, you do need wear clothes when you go to work. But after a certain point buying new clothes becomes a luxury. Therefore, there is without a doubt room for you to cut back in this category. Start small and cut your spending by 25% or $50 if you are spending $200 a month. Then work your way down to $100 or even $50. There is no sense in trying to flip your lifestyle upside down in one fell swoop.

Here are the categories you should consider when setting a budget.

1) Shelter
One of the biggest pieces of your budget will be shelter. Without shelter you might as well be homeless. If you live by yourself, there is absolutely no need to live in a three bedroom and two bath condo. In college, we shared rooms. That may be a bit extreme now that you are a working professional. If you work in the city, consider living in the suburbs. You can typically find less expensive rent the further out you are from the city. But, don't go too far otherwise you will find yourself with a longer commute. Find a group of friends and split the rent on a bigger place. On a per person basis, that will be much less expensive for all than if everyone were to get their own one bedroom place.

2) Food
While you want to save money, you also want to eat food that is nutritious and delicious.
Cooking for yourself is time consuming, but is also one of the best ways to learn a new skill to impress your significant other. There are a number of great cook books you can get started with including The Complete Cookbook for Two and Thug Kitchen: The Official Cookbook: Eat Like You Give a F*ck. Listen, you don't want to be eating McDonald's all the time. Even if it means only spending five bucks on lunch or dinner.

3) Personal
You are young at heart and want to live life. Suppose you want to the latest technological gadget or spend a day at an amusement park. Whatever the case may be, you should set aside an amount each month for you to have fun with. Call it the personal fun fund. This category usually provides the best opportunity to cut spending. Yes, you might need to tone down your lifestyle a bit, but you can be smart about it. For example, instead of spending $20 on a haircut, look around and see if  you can have a barber cut your hair for less. Alternatively, consider cutting your own hair.

4) Clothing
The best way to save money with clothes is to buy on sale. Often times, stores will have winter clothing on sale in the summer and vice versa. They are still the latest fashions, but stores are looking to clear out clothes in stock to replace it with new inventory. That is when you swoop in and pick up these great deals. Listen, you can find similar pieces of clothing in major department stores as most specific brand stores such as Banana Republic or Kenneth Cole. Nobody is checking out the tag on your shirt. The other day I spent $85 on a suit that was originally priced at $350 at Macy's. My friend thought I was wearing a $400 suit! Expensive doesn't necessarily mean good.

5) Retirement
One day you will want to retire. In retirement you pay yourself to do what you truly want to do in life. Let's face it, most people work because they earn money from it. Not because they enjoy it. Sock away a portion of your income in a Roth IRA or 401k. You'll thank yourself that you did when you get closer to 59 and a half. Saving at least 10% of your income is a good start. The more you save now the better you will be in the future. Do yourself a favor and learn to invest.

Budgeting is not difficult, though it does involve discipline. We've laid out a number of top tier budgeting tips to make budgeting easy as pie. While you can't always have what you want, we can help you get what you need.
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How to Profit from Low Oil Prices

Feb 16, 2015 -

Crude oil prices have reached four year lows. The last time crude oil was lower than it is now was in February 2009 at $43.35/barrel. By April 2011, the prices shot back up to $100/barrel. At it's current price, crude oil is hovering around $50-$55 per barrel.

Just a few months ago, crude oil was selling at $100 per barrel. How is it that companies and countries can still make money selling oil at these prices? To understand this we need to understand how much it cost to produce a barrel of crude.

Scotiabank Equity Research and Scotiabank Economics published a report in late November 2014 comparing the costs of cumulative crude oil production. At the low end Saudi Arabia is able to produce a barrel for $10-$25 USD. Whereas new infrastructure mining projects can cost upwards of $90/barrel. On average, most crude oil projects cost about $45-$60 to produce a barrel. These estimates exclude up front costs such as land acquisition and infrastructure costs. Therefore, the prices might even be higher. At these prices, most projects will lose money. Saudi Arabia is the only one that can withstand such low prices.

The easiest way to do this is to buy exchange-traded funds more specifically the Proshares Ultra DJ-UBS Crude Oil ("UCO").

Now it doesn't make sense to go out there an buy a a couple hundred of barrels of crude oil and then hoard it in your garage until the price goes up. The easier way is to trade derivatives. In other words, financial instruments that will track the price of crude oil, but are liquid enough to be traded in the open market. The easiest way to do this is to buy exchange-traded funds more specifically the Proshares Ultra DJ-UBS Crude Oil ("UCO").


Technically speaking, crude oil prices have bounced from the low in early February. For the time being prices seem to have broken the downward spiraling trend. Whether or not this continues is dependent on whether or not it is able to hold its 20 day moving average ("DMA") and also climb over the 50 DMA. Whereby the 50 DMA has served as strong resistance back in late September/early October.

A possible entry point could have been a pullback to the 20 DMA with a stop just under it. Alternatively if you want to be in the trade longer, a stop at the Feb low would also be adequate. While the stochastic indicators (STO) leave something to be desired, the STO don't seem to have a good correlation on prices at the moment. Typically, you'd want to buy when the STO level are oversold in 20 and sell overbought in 80. 
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Where Should You Put Your Money for Retirement?

Feb 11, 2015 -

You just finished graduate school or undergrad. You already have a job lined up and instead of living on that college budget, you are starting to see money flow into your bank account. Most of us aren't taught how to save and how to invest in school. The exception is if you studied economics or finance. 

We surveyed a group of individuals who were just beginning their careers in pharmacy, law, and engineering. The most commonly asked question among them was, "What do I do with this money?" 

They weren't talking about where they should be spending it, but rather where they should be saving it. The terms Roth IRAs, 401ks, stocks, bonds, and real estate all seemed to be overwhelming. They could careless what each of them did, they just wanted to be told where to put their money for the best return for retirement.

Here is the ultimate investment guide cheat sheet. 


Suppose after all your monthly expenses, you have money leftover. Most people would stash this away in their checking account. If you are smart about it, you might actually dump it into a high-yield savings account. Still, the return on that savings account is minimal. What we should do is contribute excess cash in the following fashion:

1) Contribute to your 401k until it is no longer matched by the company
2) Max out your Roth IRA
3) Max Pre-Tax 401k to the limit
4) Other tax advantaged accounts 
5) Tax disadvantageous accounts 

For example, if you have $1,000 remaining to invest or save, you would start by contributing to your 401k until your company no longer matches your contribution. Suppose that amount is $200. For every dollar you contribute up to $200, your company will put in that same amount into your 401k. This is a no-brainer because it is free money. The match amount or percentage is at the discretion of your company.

They could care less what each of them did, they just wanted to be told where to put their money for the best return for retirement.

Now you still have $800 remaining. If you meet the income limits, you'll want to contribute to a Roth IRA. Every year, the IRS will come out with a contribution limit on the Roth IRA. For example, in 2015 the amount set by the IRS was $5,500 for those under the age of 50. That limit does go down if you make above a certain threshold. For a single tax filer in 2015 if you make more than 116,000 you will not be allowed to contribute up to $5,500. If you need the full $800 to max out or will fall short of maxing out, put all of the $800 into your Roth and you are done.

If you still have cash left over then you would take a portion of that amount and put it in your 401k until you meet the IRS limit. The 401k contribution limit set by the IRS in 2015 for those under the age of 50 was $18,000. Then any cash leftover would go towards other tax advantaged accounts. For example, the flexible spending account (FSA) allows you to set aside money for health qualified expenses. All other cash should go into tax disadvantaged account, such as your mutual fund brokerage, stocks, bonds, or CDs. Four and five on the above list can be switched depending on your situation. If you have a lot of medical expenses then a FSA might be the way to go. Otherwise, stick with other investments such as mutual funds, bonds, and stocks. 
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How to Invest With $2,000

Feb 2, 2015 -

You've been able to save up $2,000 and now you are looking to see what you can do with the money. Where can you invest the $2,000? Thinking back to when I had my first $2,000, I invested it in an unorthodox way. For example, I used about $2,000 to buy Twix, Gummy Bears, and other candy bars at Costco and then resold each piece for 50 cents. In high school,  I carried around two plastic ziplock bags of candies to my classes for a couple of months. At the end of it all, I came out with $4,000 gross revenue. But what are some conventional ways of investing $2,000?


Put it in an Online Savings Account or a Certificate of Deposit

In the heyday, online savings accounts used to offer more than 5% annual percentage yield (APY). At 5% APY, you'd get $100 in interest on a $2,000 investment a year! In 2014, the interest rate dropped to 0.75%. Still, this is much better than putting it in a checking account. At this rate, $2,000 will yield you $15 a year. This is virtually guaranteed, unless of course they decide to change the yield. The amount of risk you take on by putting all of it in a savings account is minimal if you do not take into account opportunity cost.

With certificate of deposits (CDs) you essentially lend the bank money for a set period of time. Usually this is less than 5 years, but can be as short as a month. The longer the term, the higher the APY. In early 2015, the interest rates are around 0.40% to 1% for CDs. Should you withdraw the balance before the maturity date (term of the CD), you would be subject to penalties. You can open CDs up at your local bank branch or at online banks.

Buy Governmental Treasury Bills, Notes, or Bonds

Buying U.S. Treasury securities is a great way to invest for the future. Instead of lending to the bank, you are lending to the U.S. Government, which is usually a safe bet that you will get your initial investment bank plus interest.

The differences between treasury bills, notes, and bonds are the maturity time frames. A treasury bill is a short-term investment that will take no more than a year to mature and interest is "paid" at maturity. For example, you would buy a 52-week bill that pays $1,000 at maturity for $980. After a year you will be paid $1,000 by the government on your $900 investment, which is essentially a 2% APY. Treasury Notes' maturities range from two to ten years and Treasury Bonds' maturities exceed 10 years with interest being paid semi-annually (twice a year) for both types.

You can find the most recent Treasury APY rates at on the TreasuryDirect website. Purchases can also be made via the aforementioned website.

Stash your $2,000 into a Roth Individual Retirement Account (IRA)

The main benefit of a Roth IRA is tax-free income in retirement. The caveat is of course you pay tax now on the amount you contribute to the IRA. This doesn't mean it gets taxed twice. It just means you take after-tax dollars and put it in the account. For example, the paycheck you receive from your employer is taxed and that money can go directly into the IRA. The IRA itself would then have investments in mutual funds, stocks, bonds, etc. Then when you are 59 1/2 you can withdrawal your initial investment and any unrealized gains tax and penalty free.

The maximum you can contribute to the account varies from year to year. In 2015, that limit is $5,500, but you can always find the most updated contribution limits at the IRS website. There are other conditions to consider which include that you can only contribute as much as you've earned for the year. For example, if you earned $1,000, you can only contribute $1,000 to the Roth IRA for the year.

You can open up an IRA at any brokerage account and sometimes even at online banks.

Buy Stock Shares in a Company 

With $2,000, you would be best allocating that to no more than two or three stock positions. Trade commissions are around $5 per trade and $10 total to buy and then sell. If you allocate a third of that to a stock then you are already down 1.5% from commissions alone. At an allocation of $1,000 you are down 1% from the on set. Still the growth potential with stocks is enormous compared to that of the savings accounts, CDs, and Treasury securities. However, you also put your money at greater risk. You could potentially lose it all, but there is also the possibility of doubling up over time.

If you qualify and are able to open up a Roth IRA, have decades before retirement, and don't need the cash immediately, a Roth might be a good place to stash your cash. Within the IRA, you can also purchase shares of a company and allow that to grow tax free.

Savings accounts and CDs are best if you think you may need the cash within a couple months or even years. Depending on your time frame, Treasury securities may provide you with better yields than CDs or savings accounts.
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Top Four Learning Strategies - Learn Just About Anything Quickly

Jan 26, 2015 -

There is no doubt that the older we get the more difficult it is to learn new things. In grade school, I was always bewildered by how the teacher could forget our names. Granted they probably had more students then those in my class, but it was almost like instant recalls for myself. As I grew older, I started having trouble remembering people's names. Was his name John or was it Jim? He looks like someone I know named Jim, but his name is John.


Researchers have attributed learning difficulties as we age to numerous things. Evidently, age for one. But, some have said that the interference from knowledge gained in the past affects the processing power for new memories. Others have cited that the brain becomes more specialized and does away with the neuron connections that are not used as often. Sort of a "use it or lose it" kind of gig. In any event, there is a way to combat this, but like anything, it require work.

Shoot for the stars and land on the moon.

If you want to become good at something, look for the best. When I picked up golf about five years ago, I knew that eventually I was going to build a habit and a way of swinging the club - whether it be the proper way or a Charles Barkley way. It didn't make sense to go read a bunch of golf books or watch a bunch of amateurs. Even if I didn't want to play professional golf, the quickest way was to learn proper golf from someone who was doing it at a high level. At the very beginning, I sought out an instructor who had played professional golf in his earlier years. I wanted to build good habits from the beginning, so what better way to learn then to learn from the best.

Learn by doing and not be reading.

If you want to learn how to build a website or use Photoshop. The best way to learn is always by doing. In addition, to building this blog, I've created and a number of websites over the years including my most recent project, Noveloot. My background is in accounting/finance, and I didn't take a single programming class in college or ever. All of my learning came from Googling and trial and error.

Share your knowledge.

One of the reasons why I created this blog was to help reinforce everything that I've learned. If you are able to teach someone what you've learned that ultimately means you truly understand the material. Furthermore, I wanted a personal database of all the interesting and fascinating things I've learned. Recently, a friend of mine was planning a trip to Amsterdam, I was able to direct her to my blog. Let's face it, it is hard enough to remember what you had for lunch.

Practice shorter, but more often than longer, but less frequent.

A piano player that practices 10 minutes every day will do a lot better than one who practices 2 hours once a week. Let's face it, your brain needs time to process what you've learned. Also, we remember the first and last things the most. So recap what you've learned after each session to reinforce the important things you want to remember.

Ultimately, fast learning is an illusion. Most people who appear to be learning quickly are merely just associating what they are learning with similar concepts they've encountered in the past. They were modifying and combining old ideas to figure out new ones. One interesting similarity shared amongst them were that they were always looking to learn new things, draw new connections, and develop their intuitions.
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How Many Shares Do You Buy?

Jan 21, 2015 -

How many shares of a stock you can buy is largely dependent on how much capital you have. Evidently, the more money you have the more shares you can buy. But does that mean you should buy more shares of a company?


The general rule to how many shares you should buy is largely a function of how much you are willing to lose or risk. Not only are you looking at how much money you could lose, but also the opportunity cost foregone. Ask yourself what else could you be doing with the money? You could be saving it for a down payment on a house or a car. Alternatively, that money could be going into bonds or certificate of deposits (CDs).

Furthermore, investments take time to appreciate in value. Even if you are looking to trade stocks in the short-term, you may need to wait days or even weeks for their value to increase. In other words, when you buy a stock you will have to be prepared to have that money "locked" up for a certain period of time. Of course, unlike a CD there is no set time limit, but you can't exactly withdraw money out of your brokerage like a checking account either. 

The general rule to how many shares you should buy is largely a function of how much are you willing to lose or risk.

When you've figured out how much money you are willing to set aside for stocks and understand that you may not be able to use that money for a while that's when you can start to determine how many shares of a company you should buy.

Determine your Trading Time Frame

Are you looking to trade stocks in the short-term (less than a year) and engage in speculation? Or are you looking to hold stocks for the long-term (more than a year)?

Long-Term Position Sizing

If you are looking to hold stocks for the long-term then the answer is easy. The cheaper the stock and the stronger the belief you have in the business itself, then the more of it you should buy. For example, if you have $30,000 then maybe allocate $15,000, $10,000 and $5,000 to three different stocks. Put $15,000 in the stock you have the strongest belief in and $10,000 in the next and then $5,000 in the stock you are not as confident in. Alternatively, you could allocate it evenly between three. It is better to own a lot of three of the best stocks than some shares of twenty different stocks. Why do you ask? The reason is because you will be more selective and only pick the best of the best

Short-Term Position Sizing

Should you decide to trade in the short-term and engage in stock speculation then you'll have to determine how many shares you buy based on how much you are willing to lose on every trade. 

For example, let's say you have $10,000 of trading capital. The rule of thumb is to risk no more than 1% of your portfolio in any one trade. That means the most you can stand to lose on one trade is $100 including trading commissions. This doesn't mean that you can only buy $100 dollars worth of stock in any one trade. In fact, you can buy $10,000 in stock and still only risk $100. 


What do you mean by buying $10,000 worth of shares and still only risk $100?

Suppose you buy Clean Energy (CLNE) at $12 a share. You put your STOP LOSS at $10 dollars per share. The stop loss is the point at which you admit defeat and for whatever reason your trading plan no longer works. In other words, time to get out of the position.

In the above situation, you are buying at $12 and because your strategy is to play the $12-$14 trading range you sell when it breaks $10. You do this because you want to protect your capital and limit your losses to $2 per share. Yes, the stock could rebound and go back to $12, but you don't want to take that risk because it could just as easily go down to $8. When your trading strategy stops working it is time to get out because you can no longer with high probability predict where the stock will go next. When you first entered the position at $12, you had a good idea that it could go up to $14 and trade within that trading range. The moment it breaks the trading range, the strategy is to exit immediately. Cut your losses right then and there.

Should you decide to trade in the short-term and engage in stock speculation then you'll have to determine how many shares you buy based on how much you are willing to lose on every trade.

If you are looking to risk $2 per share and based on $10,000 portfolio, you should buy 50 shares of CLNE or at $12 a share that is a total of $600 dollars. If the stock dips to $10 you exit and come out with a controlled loss of $100 (before commissions). Should the stock go to $14, you come out with a $100 gain (before commissions). That is how you can trade with more money, but put less money at risk.
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Should You Even Consider ETFs in Your Investment Portfolio?

Jan 13, 2015 -

Exchange traded funds (ETFs) combine both stock and mutual fund-like characteristics. Like stocks, ETFs can be bought and sold throughout the day at market determined prices (i.e. market orders or limit orders). Similar to mutual funds, ETFs represent interests in a pool of assets and can track against indices, commodities, currencies or industries. ETFs have ticker symbols just like stocks and mutual funds. The difference is that with ETFs, you will actually be able to see the daily or weekly market prices much like a stock, while for mutual funds a stock chart may be harder to come by.


Diversified Funds

There are ETFs for all the major indices including S&P 500, Dow Jones, Russell, NASDAQ, commodities such as gold and silver, industries such as technology and oil, and currencies such as the yen. In addition, generally speaking, ETF's fund fund fees are less than that of mutual funds. Though if you are actively trading in and out of them, the fees are negligible or non-existent.

For example, XLU (Utilities Select Sector SPDR) tracks the utilities sector and in December 2014 it was trading at around $40 per share on the NYSE. As such, if you are bullish on a particular industry or commodity, you can purchase an ETF that tracks it. The price of your ETF will move similar to that of the actual index, commodity, or industry.

Leveraged trading without using margin

You can also leverage twice (2x) or even three (3x) times these indices and specific industries. For example, if you were to purchase Ultra Dow 30 (DDM), which tracks the Dow 2x and the Dow moves 2% during the day, then your ETF would move about 4% in the same direction. Conversely, if the Dow moves down 2%, your ETF would go down by approximately 4%. Now if you think that the Dow will go down you could buy UltraShort Dow 30 (DXD). This would track inverse that of the Dow by 2x. So, a decline of 2% in the Dow, in theory would increase your ETF price by 4%. While these do not track perfectly, they move relatively close to the actual indices. Therefore, you will be subject to some premium and discount volatility.

ETFs make great trading vehicles for those who want to use leverage without having to draw on margin accounts. With margin accounts, you borrow money from the brokerage to buy or borrow stocks. The disadvantage of trading on margin is that you are charged interest on the amount borrowed. With ETFs, there is no interest when you buy inverse ETFs. They trade like stocks and other ETFs.

Having said all of this, it is usually not the best idea to hold leveraged and inverse ETFs for more than a day. Why is this? Leveraged ETFs re-balance and look to deliver the multiple only on that day. So, if you hold over multiple days you may not get the return you are looking for. These ETFs are typically reserved for the very active traders.

Additional Reading

Can get enough? Here is a list of bullish ETFs and bearish ETFs. Are you looking to learn more about ETFs? Here are two books that have come highly recommended by other investors.

        

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How Do You Decide to Buy a Stock?

Jan 7, 2015 -

Let's not kid ourselves and cut to the chase. We will only buy stocks if we think at a later time we can sell it for more than we had purchased it for.


Buy into a Company for Future Earnings and Potential

A stock represents an ownership interest in a business. While buying a handful or even couple thousand of shares will not grant you significant influence over say an Apple or Google, but you still technically have a say. That means you have voting rights when it comes to electing directors and fundamental changes that affect the company such as mergers and acquisitions.

There are different ways to value that piece of ownership. One way of doing this is asking yourself what would you pay for the entire business? Then ask yourself is that stock worth that portion of the entire business?

If the business does well or is projected to do well then in theory we would expect the stock to do well also. Of course, it is not a direct correlation all the time. The market dictates the price and like things sold at the supermarket, sometimes it will go on sale or be marked up. However, in the long run, you would expect the stock price to catch up to the company's profits.

Bottom line is that if you believe that a business will continue to increase profits and grow market share, then you should buy it now because in the future it will be worth much more than you paid for it. Having said that, a couple of companies you might want to do some research on are Alibaba (BABA) and Tesla (TSLA).

Collect your Passive Income Now

Let's say you are looking for passive income. Something that will give you money for little or no work at all. Maybe you've considered buying investment real estate property. Every month, your tenant sends you a check for rent. That sounds great, but usually there are a couple other hoops to jump through. First of all, you'll need to find a tenant. Then of course if anything in the house breaks you'll have to go and fix it or find a handyman. What happens if your tenant doesn't pay on time? Oh you might have to chase them down for payment.

There are alternative forms of passive income. Buy dividend yielding stocks. These are stocks that pay a portion of their earnings or profits to their shareholders. In most cases, these companies are large established profitable businesses that have enough money to reinvest a portion of their profits and payout to shareholders.

Dividends are usually paid out quarterly and depending on the company can yield more than 10% of their share price a year. Typically, Real Estate Investment Trusts (REITs) offer the highest investment yields to their shareholders. The main reason is that they are obligated to distribute at least 90% of their taxable income to shareholders in the form of dividends. REITs allow investors to invest in real estate without having to deal with the shenanigans of purchasing and maintaining property.

However, like other stocks, these REITs are subject to market fluctuations. But, if you are not looking to sell, then these dividend yielding stocks can provide for a decent passive income stream. Companies such as American Realty Capital Properties (ARCP) and American Capital Agency Corp. (AGNC) both yield annually at around a 12% dividend rate.

Flip a Stock and Make a Quick Profit

Undoubtedly, stocks are subject to market fluctuations. As I had previously mentioned, stocks may be trading at discounts, but there can also be times when they are severely overvalued. For example, in 2008-2009 the financial crisis hit and that caused many stock prices to fall more than 50%. Had you had the insight into that, you would've bought then and there as you've now seen stock prices reach all-time highs.

There are a number of ways to determine whether or not you are at the low or high end of a price range. The first question you ask yourself is, is the stock undervalued in the short term (weeks or months)? Technical analysis is the technique in which you analyze whether or not the price of a stock is over or undervalued in the near term. In other words, with a level of certainty you determine when to buy a stock based on their stock chart.


For example, some stocks will trade in price ranges. This means the stock will fluctuate from say $12 to $14. The simple strategy is to buy when it is $12 and then sell when it is $14. You thereby make about a 16% profit. Now this doesn't always work, but for five months in 2013 this was a great strategy for trading Clean Energy Fuels (CLNE).


Another example is a what we call in technical analysis as a descending channel. For about seven months in 2014, Deere & Co (DE) declined from about $93 to $79 per share. This whole time we drew a channel to track the price. There isn't an exact science to drawing the channel, but the more points the chart touches the line the more accurate the channel. When it finally broke outside of the channel, we bought at $82. If you check the stock now, it is trading upwards towards $85 per share now.

If you are looking for more technical analysis patterns, I would highly recommend looking into the below stock chart books.

    


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Alternative to Excel Pulling Stock Quotes from MSN Money - Use Google Sheets

Dec 24, 2014 -

The Microsoft Excel stock quotes plug-in stopped working the way it was designed to. Maybe it is temporary or maybe it is here to stay. Regardless, here is a temporary or with a little effort you could make it a permanent solution.
Start using Google Spreadsheets. My only gripe about it years ago was that you were not able to take it offline or had to go through a number of hoops to take it offline. However, they've fixed it since and now you can save it to a Google Drive and access it offline. 

When you open Google Sheets, you can create a new sheet by clicking on the huge green plus sign on the bottom right corner. Next it will take you to a sheet that looks very much like Microsoft Excel. Like with Excel formulas, you can actually put in a stock formula that will pull delayed quotes from Google Finance. 

The formula is =GOOGLEFINANCE(ticker). This will default to the price of the stock. Similar to Excel, you are also able to select a cell with a ticker versus typing in the ticker. Your formula would look like =GOOGLEFINANCE(A1). Whereby A1 is the cell in which you have your ticker symbol. 

What is so great about Google Sheets is that you can do a lot more than you could in Excel. For example, if you are looking for the current day volume, just simply put "volume" after the ticker as the "[attribute]". It would look like this =GOOGLEFINANCE(NKE, "volume"). 

Another useful function of Google Sheets is that you can pull historical stock price data straight from Google's stock database. In the below example, when you specify the symbol, attribute, start_date, num_days or end_date, and 1 interval, Google will automatically pull that information into your sheet. 


You might decide to forgo Microsoft Excel stock plug-in and use Google Sheets. Google Sheets lets you import your old Excel sheets. That way you don't need to start from scratch. Just go to File -> Import and then select your Excel sheet.

What else can Google Sheets do? It can also pull quote and data for mutual funds and foreign exchange trends. 


A number of useful attributes for pulling stock information from Google Finance are all shown below. 

Syntax
GOOGLEFINANCE(ticker, [attribute], [start_date], [num_days|end_date], [interval])
  • ticker - The ticker symbol for the security to consider.
  • attribute - [ OPTIONAL - "price" by default ] - The attribute to fetch about ticker from Google Finance.
    • attribute is one of the following for realtime data:
      • "price" - Realtime price quote, delayed by up to 20 minutes.
      • "priceopen" - The price as of market open.
      • "high" - The current day's high price.
      • "low" - The current day's low price.
      • "volume" - The current day's trading volume.
      • "marketcap" - The market capitalization of the stock.
      • "tradetime" - The time of the last trade.
      • "datadelay" - How far delayed the realtime data is.
      • "volumeavg" - The average daily trading volume.
      • "pe" - The price/earnings ratio.
      • "eps" - The earnings per share.
      • "high52" - The 52-week high price.
      • "low52" - The 52-week low price.
      • "change" - The price change since the previous trading day's close.
      • "beta" - The beta value.
      • "changepct" - The percentage change in price since the previous trading day's close.
      • "closeyest" - The previous day's closing price.
      • "shares" - The number of outstanding shares.
      • "currency" - The currency in which the security is priced.
    • attribute is one of the following for historical data:
      • "open" - The opening price for the specified date(s).
      • "close" - The closing price for the specified date(s).
      • "high" - The high price for the specified date(s).
      • "low" - The low price for the specified date(s).
      • "volume" - The volume for the specified date(s).
      • "all" - All of the above.
    • attribute is one of the following for mutual fund data:
      • "closeyest" - The previous day's closing price.
      • "date" - The date at which the net asset value was reported.
      • "returnytd" - The year-to-date return.
      • "netassets" - The net assets.
      • "change" - The change in the most recently reported net asset value and the one immediately prior.
      • "changepct" - The percentage change int he net asset value.
      • "yieldpct" - The distribution yield, the sum of the prior 12 months' income distributions (stock dividends and fixed income interest payments) and net asset value gains divided by the previous month's net asset value number.
      • "returnday" - One-day total return.
      • "return1" - One-week total return.
      • "return4" - Four-week total return.
      • "return13" - Thirteen-week total return.
      • "return52" - Fifty-two-week (annual) total return.
      • "return156" - 156-week (3-year) total return.
      • "return260" - 260-week (5-year) total return.
      • "incomedividend" - The amount of the most recent cash distribution.
      • "incomedividenddate" - The date of the most recent cash distribution.
      • "capitalgain" - The amount of the most recent capital gain distribution.
      • "morningstarrating" - The Morningstar "star" rating.
      • "expenseratio" - The fund's expense ratio.
  • start_date - [ OPTIONAL ] - The start date when fetching historical data.
    • If start_date is specified but end_date|num_days is not, only the single day's data is returned.
  • end_date|num_days - [ OPTIONAL ] - The end date when fetching historical data, or the number of days from start_date for which to return data.
  • interval - [ OPTIONAL ] - The frequency of returned data; either "DAILY" or "WEEKLY".
    • interval can alternatively be specified as 1 or 7. Other numeric values are disallowed.
Notes
  • All parameters must be enclosed in quotation marks or be references to cells containing text, except when interval is specified as a number and when end_date|num_days is specified as a number of days.
  • Realtime results will be returned as a value within a single cell. Historical data, even for a single day, will be returned as an expanded array with column headers.
  • GOOGLEFINANCE is only available in English and does not support most international exchanges.

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Stock of the Week: NIKE (NKE)

Dec 21, 2014 -

An Overview Summary of NIKE (NKE)

NIKE, inc. is a household brand name athletic footwear, apparel, equipment, and accessories company. NIKE focuses on eight key categories including Running, Basketball, Soccer, Men's Training, Women's Training, Action Sports, Sportswear and Golf. 


What you may not already know is that NIKE also owns Hurley, Converse, and of course Brand Jordan. In late 2012, NIKE sold off their stake in Cole Haan to a private equity firm in Apax Partners for $570 million. Sales of Cole Haan only represented 2% of NIKE's overall revenue. In early 2013, NIKE also announced the sale of the Umbro brand to Iconix Brand Group for $225 million.

Highlight Fundamentals

As a consumer products company, NIKE's business is subject to changing sports and fashion trends. Shifts in sports popularity affects where revenue comes from. Generally speaking, in the past year NIKE has experienced higher sales in Running, Basketball, and Soccer. While NIKE designs and distributes athletic footwear and such, nearly all of its manufacturing is done overseas at independent contractors mostly in Vietnam, China, and Indonesia. 

NIKE's competitive advantage comes from focusing on product quality, performance and reliability, new product innovation, and consumer price/value. Furthermore, as the largest seller of athletic footwear, apparel, and equipment in the world, they are extremely focused on consumer connection and influential athletes. It is not unusual to see a Kobe Bryant or Lebron James in a NIKE ad campaign. 


Since 2010, NIKE's revenues have increased every year from $18.3B to $27.8B in 2014. This is over a 50% increase in four years. Much of NIKE's revenue is derived from its wholesale business. Meaning they will sell directly to wholesale customers, who will then sell to retailers alike. In fiscal year 2014, this accounted for nearly 76% of total revenues, with sales direct to customers coming in at 20%. The remaining 4% is revenues from licensing, which could mean NIKE allowed someone to use their trademarks or other intellectual property rights and in return paid royalty revenues to NIKE. 

Net income for the past three years from 2012 to 2014 has been around $2.2B to $2.7B. Equally impressive is that its gross margin has held at a 43.5% to 46.4% range. As of Q3 2014, it holds $2.5B in cash and short-term investments, which more than covers its long-term debt of $1.2B. It is also worth noting that recently the company spent $2.6B on repurchasing common stock. 


The majority of NIKE's sales has come from North America where Basketball, Sportswear, and Running categories dominate. In other parts of the world, it is not surprising to see Soccer sales be greater than almost any other category. Such is the case in Europe.

Highlight Technicals

From a technical perspective, NIKE has done particularly well in the last three six months.

It just recently retested the 50 DMA a second time. Typically when this happens the 50 day moving average (DMA) is more than likely to break. The more times a moving average is tested, the more likely it is to fail. However, we will need a candlestick confirmation as to whether or not this is a true break of the 50 DMA.


Should the 50 DMA break, then you are looking at support at around $90. Furthermore a move back to around $90 also happens to be at the 61.8% Fibonacci retracement level. Evidently there is resistance at $100 both in the psychological sense and technical sense. 

The oscillators are showing that the stock just work off some overbought conditions. A confirmation that the Friday hammer is indeed a reversal signal would be good for the bulls. Otherwise there maybe more downward action before a true bounce from the downtrend beginning in early December.

Disclaimer: This article is written for informational purposes only and not intended for investment advice. For more similar articles visit www.stockkevin.com.
Disclosure: I do not have a position in NKE.
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12 of the Best Gifts for the Avid Investor

Dec 15, 2014 -


The Intelligent Investor$12

One of the world's richest men in the world cited that The Intelligent Investor changed his financial life. This book was written by the great Ben Graham, whom Warren Buffet cited as one of the greatest investors of all-time. Graham lays out the foundation of value investing: the idea of "Mr. Market", a value-oriented approach to investing, and the "margin of safety" concept. 




Security Analysis$40

The teachings of Benjamin Graham, known commonly as “the father of value investing”, are as relevant today as when they first appeared nearly eight decades ago. The book focuses on how to read and understand financial statements. This book is not an easy read as it is lengthy. You can not afford NOT to read Security Analysis. This is a highly recommended book to investors alike.



The Wolf of Wall Street$14

Jordan Belfort was a kingpin of an investment firm and one of the most infamous people in American finance, he sold securities and racked up millions in fees. You and your friends may not be able to replicate what he has done and probably wouldn't want to as he eventually had the SEC and FBI on his tail. But, you might find his story an interesting one in The Wolf of Wall Street



Boiler Room - $5

Seth Davis, a decent college dropout earning a living by running a casino inside his house. Seth takes on a job at a stock brokerage firm where he becomes a fast tracking stock broker and making good money. Only later does he find out that his job isn't what it's cracked up to be. If you're in the mood for a really good film, buy Boiler Room





Eat Sleep Stocks Mug$13

For the avid stock investor, this stock mug is an absolute must. We all eat, sleep, and breathe, but only the greatest of investors focuses on stocks as well. This Eat Sleep Stocks mug is 11oz of ceramic, large, and the perfect size for or morning coffee or late-night brew.




U.S. Silver Eagle Coin$28

The Silver Eagle coin is made of one ounce of .999 fine silver. This official collectors version is made from the official United States Mint. U.S. Mint proof coins are extraordinarily brilliant, with sharp relief and a mirror-like background. Their frosted, sculpted foregrounds give them a special cameo effect. Proof blanks are polished and cleaned to ensure high-quality strikes.



US Mint Uncirculated Coin Set $37

The United States Mint Uncirculated Coin sets always make great gifts. This particular coin set features 28 different coins in uncirculated quality. Each coin is sealed and displayed in folders. Just know that this could turn out to be worth more in the future than you paid for today. But, of course this would make a great gift for any avid investor. Set comes in its full original US Mint packaging.



Bronze Plated Bear and Bull Head Bookends$49

If you know an avid investor or financial planner, you can be sure that he or she has tons of finance books. When we think of Wall Street, we think of bull and bear markets. These bull and bear bookends would make fantastic gifts for avid investors. 




Margin Call $5

Kevin Spacey plays Sam Rogers, Head of Sales and Trading, in the entangling thriller of "Margin Call". Involved are key players at an investment firm during the earliest hours of the 2008 financial crisis. An entry-level analyst unlocks information that could prove to be the downfall of the firm. Employees decide to save their own company or risk fleecing millions of investors.


Wall Street Journal Subscription$23

Finally, something your friend would find useful - daily newspaper (except Sunday) straight to the Kindle. Perhaps he or she already subscribes to the Wall Street Journal. Well, you could always renew their subscription for them. This subscription comes with a risk-free 14-day FREE period after which the subscription starts.



Sheet of 2 dollar bills$80

Green, Green, Green. What is better than giving money? A sheet full of money. Did you know bills are actually printed on sheets and then they are cut into bills? These are genuine crisp $2 United States Note uncirculated legal tender bills.






Banker Green Lamp$42

Incidentally, early incandescent light bulbs tended to be harsh on eyes. Therefore, green shades were used to lessen eyestrain by many financial professionals and lawyers. Much can be said about a person's table decor and in particular a lamp. The classic banker's lamp has a green shade long since been associated with finance and accounting.


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