I subscribe to the Motley Fool Income Investor newsletter, and PetroBras, a Brazilian oil company, was recommended twice this year. I mainly bought on that recommendation, and it has turned out to be an outstanding recommendation. I bought at $52.83 at the back end of August, and the shares now stand at $106.71, having doubled in price in less than 4 months. They have lately been in the news quite a lot because of large additional oil finds. “Buy on the rumour, sell on the news”, I guess that means I should sell, but being a buy-and-hold investor (with a love for dividend-stocks) that is not really my style. They don’t believe the hype over on Seeking Alpha, so this may be something I end up regretting, but nevertheless, it is staying in the portfolio.

Yahoo Finance profile

Go to my Covestor profile if you want to see my returns on Google shares so far.

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I recently came across this article on “Seeking Alpha” about “Peer-to-Peer” investing (Covestor and VesTopia: Winners and Losers from Peer to Peer Investing - Seeking Alpha). I thought it sounded quite interesting and decided to have a go at signing up and I am now a “certified member” (I am soo important :-).

Covestor is “A real-trade sharing service for proven self-investors”. It is a bit like the portfolios you can create at finance.yahoo.com or finance.google.com, except, your portfolio is visible to other people surfing the internet. Other people won’t be able to see the exact size of your portfolio or exactly how many shares you have in a particular company (that is expressed as a percentage of your holdings). They don’t even necessarily know your name, you can use a pseudonym. But they can se how successful (or not) your portfolio is and they can decide to track it. If they track it, they can see whenever you make a trade. It is obvious what is in it for those following the portfolios of successful investors, but what’s in it for those baring their portfolios and trades? Well, other than the obvious 15-minutes of fame, there is the self-interest in being able to compare with others and the “I’ll show you my portfolio if you show me yours” and learning from what others have or are doing. Covestor say they will in the future allow successful self-investors to charge a fee to allow others to follow their portfolio allowing anybody to become the equivalent of a mutual funds administrator, only, without having to administrate the mutual funds. To keep the self-investors honest, you can either have Covestor pull the data about your trades directly from your online broker (if it is on the list of supported brokers), or if you enter your trades manually, you have to upload statements from your brokerage to Covestor. Personally, I opted for the latter, I use E*Trade in the US, and I have a digital security id device I have to use every time I login, so the automatic option isn’t available to me.I was a little bit sceptical in the beginning, I track my portfolios in Quicken, I don’t really want to keep the portfolio up-to-date other places as well, but even though I use the “manual” method at Covestor, whenever I submit a new monthly statement, shortly afterwards, the new data appears. Someone at Covestor is obviously looking at that statement and entering the data for me.
I have very recently started to add shares to watch-lists at Covestor; it allows me to instantly see other portfolios where a particular share is part of the holdings, and, if they’ve entered that information, the rationale behind them holding it.At the moment, my portfolio is in the black, so I am happy to share it on Covestor :-), we’ll se what I think about it if my prtfolio takes a beating.

I haven’t been registered at Covestor for very long, but this is a site I would recommend. I have so far only tried it with US stock holding, I suspect it would be less useful if your share holdings are all in non-US shares.

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I never thought I would actually post something about compounding and here I am, writing my second post. Well, first of all I thought it was such a well understood principle. As mentioned in my previous post, my wife recently came across an acquaintance who did not believe an example on compound returns she provided. The numbers were too startling.

If, however you are converted, this post titled “When Even The Power Of Compounding Can’t Save You” gives further insights on using compounding to reach a million dollars. It even contains Yet-Another-Einstein-Reference-To-Compounding (hereafter known as YAERTC). Besides the Einstein reference,  the post is good, especially at showing how reaching the first million, even using compounding, can take a while. Provided you can keep away from the money, compounding ensures that the second million arrives in your account up to six times faster.

The tables show how long it will take using different values for monthly contributions. The highest value, $1,291.66, represents the maximum monthly contribution Americans can make to certain tax-friendly investment accounts (401(k)s). With the current USD to GBP exchange rates and multiplying that value by 12, you get ~£7500, not far from the maximum amount you can contribute each year to a Maxi ISA here in the UK (£7000 this tax year, £7200 next tax year).

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When mentioning compound returns, many quote Albert Einstein as having declared compound interest to be “the most powerful force in the universe”. It is an urban myth, but it seems to have taken on a life of its own, so I had no choice but to also mention the quote in this particular post :-).

I am fully converted to the principle of compound returns, and having teenagers I have frequently tried to teach it to them. I recently saw a very convincing example of compound returns and the advantage of starting to save as early in life as possible. The example compares two people, each putting aside the same amount of money per year. However, person 1 starts as a 20-year old and stops as a 30-year old but keeps the savings account. Person 2 starts at age 30 and continues until he/she reaches the age of 60. Person 2 will have contributed 3 times as much to the savings or investment account as Person 1, but Person 1 ends up with more money.

My wife mentioned the example to some acquaintances the other day, and some of them just wouldn’t believe it. Whilst compound returns IS obviously true, I started doubting the example, maybe the gains from 10 years of early contributed savings did not surpass the gains from 30 years of savings, maybe I was the victim of yet another internet-circulated urban myth.

So I created a simple spreadsheet, and the results are just in:

• At a return of 3.6% and above, the total gains are higher for Person 1 than for Person 2.
• At a return of 6.3% and above, the total result is higher for Person 1 than for Person 2.

If you want to see for yourself, or play around with some of the numbers, you can download the spreadsheet here.

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This book is sold in the US as “The Rules of Money: How to Make It and How to Hold on to It”. I recently bought this book after thumbing through it in an airline book shop. The bit that caught my attention was the last section of the book titled “Sharing Your Wealth”. The book contains 100 different rules on wealth, split into five sections:

• Thinking Wealthy
• Getting Wealthy
• Get Even Wealthier
• Staying Wealthy
• Sharing Your Wealth

One of the rules, “Decide on your definition of wealth”, quite possibly did make it worthwhile to buy the book, but overall, I was quite disappointed. The subtitle of the book, “A personal code for prosperity”, seems to imply that there is a system to the rules of wealth in the book, but I found the rules disjointed with no clear path from rule to rule. Many of the rules are relevant only if you run your own company. Except for that one already mentioned rule, I didn’t find anything in this book I haven’t found in other books on personal finance, building wealth, or money management. That is fine, if at least the book inspires me to do things that, even though I may already have understood it or believed in the principle, I don’t do. But that wasn’t the case with this one. I would not recommend this book.

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