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Another Day the World Changed

This day in 2001, the world changed, and I still feel the effects of the attacks on New York, and Washington on 9/11/2001 (and the attacks in London on 7/7/2005).

When that day started, it was a normal day for me, I had gone to work, and was in a meeting when a teammate called me over and showed me a picture of the second plane going into the towers on the CNN.COM web site. At first I was positive someone had photo shopped something and hacked the CNN site, but it quickly became obvious that this was really not the case. As the day unfolded, it was obvious that this was going to change the world as we knew it.

For me a bunch of things came out of that day that changed my world:

  • The economic tailspin contributed to Nortel’s problems (no it didn’t cause Nortel’s downfall, but it did help it along a fair amount). This eventually led to me getting laid off (again not a direct cause, but a contributing factor).
  • I spent a lot of the day trying to figure out if my Brother was safe (given he was travelling at the time), he was fine, but I then found out about friends who had family who were killed.  I don’t know a lot of folks who had family who died, but the anguish they still feel is heart-rending.
  • I tried to explain it all to my kids (who were very young at the time), not sure that I succeeded, since I really couldn’t make a logical explanation up as to why it happened.  Do they remember the day? Sort of, but not with the clarity that my wife and I do.

My life didn’t change directly because of the attacks, however, it did change the world, and it continues to change the world.

There have been many days when the world changed, but this one looks to be the one (in my lifetime) that will live in infamy.

What are your 9/11 recollections?

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Why I am Not Rich (the 90’s)

As promised here, here are a few more of the reasons why I am not rich (financially). Here are more of the reasons (in my opinion) why.

In the ’90s the perception was that the stock market and making money was as easy as sex. I can assure you that this was not the case. I like to think of it as teenage sex. Everybody talks about it, but (when I was young) there wasn’t any going on.

Death of Nortel
Graphically, the Death of Nortel

Some opportunities arose that I might have taken advantage. If I didn’t have kids, a mortgage and a paranoid view of how the stock market worked, I might have given it a whirl. I was in the Nortel Savings Plan. In the plan for every $3, I deposited the company kicked in $1. This was in stock, and money could only be removed 2 years after the money was put in. I did actually make some good money on this in the early part of the 90s. It helped pay for a car and some repairs on my house, so my claims of abject poverty are hollow. Yes, I made some money early on in the ’90s.

I did take a few flyers on a few stocks. Unfortunately, I became overconfident, and a few of these flyers crashed into the financial terra firma with a loud bang. A few of these were Corona Mining and a few other mistakes.

Cisco

My biggest slap on the back of the head is when I was in the I.T. group at Nortel. I looked at these stacks of boxes from a company called Cisco. I went and talked to the Networking guys. They thought this was the manufacturer we would use to set up our corporate data network. At that time Cisco was not a name I even recognized, but I thought, boy I should really buy some stock in that company if we are using them, this was in 1990, and if I had bought some Cisco (and presumably sold before 2000), I might be a lot farther ahead in my financial journey.

On the converse side of things, as I have written about before, in the Top 5 Investing Regrets of my Life I held onto high-tech (specifically Nortel) shares for way too long (when I knew full well that most of the claims being made were at best fantasy). Another example of sometimes when to buy is not as important as when to sell. At the point I am commenting on, I had a substantial investment in Nortel in terms of:

  • Savings Plan stock which I had purchased with a kick-in from Nortel of 25%
  • I was being paid by Nortel (including bonuses and such)
  • I had a pension with them (which was also buying Nortel Shares)
  • Stock options (which never were worth anything) to purchase Nortel Shares
  • Owned Nortel shares outside of the savings plan that I had bought myself (yes that was a huge mistake)

I could have made a lot of money here, I could have made some money, but in the end, I lost a fair amount of money, which was my fault. Luckily, I could extricate my pension intact, but the rest of the money was mostly written off, so I am better off than many folks.

Am I Feeling Sorry For Myself?

Now I have a boring RRSP, a Spousal RRSP, and a Public Service Pension, and I am pretty happy.

Am I lamenting with these posts about how this is all unfair? No, not in the least, this was all of my own doing, and it has taught me a great deal about what is valuable in life, and how a lot of times, bad things happen for a reason.

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Long Term Disability Insurance

Nortel screwed over their employees who had Long Term Disabilities, because Nortel was self-insuring. No one came to their rescue either, their long term disability insurance did not help. Other companies self-insure, so you need to be careful with your LTD insurance

I have written before about the plight of the folks who were in the Nortel Disability plan (and are now in a bad predicament), but they lost one of their most active advocates in Peter Burns over the weekend. Peter attempted to put a face to the folks effected by the Nortel Disability debacle (because Nortel was self-insured, the disability insurance pay outs became simply another group of creditors).

My connection to this story is that I used this insurance, assuming I was protecting my family, when I worked at Nortel. I was lucky that I never had to test the insurance’s usefulness. I am aware of former co-workers who are now in a much worse financial place because of the January deadline which cut off these folks from the benefits they thought they were purchasing.

Given there are a lot of folks who do worry about the future and attempt to protect their families with disability insurance, they need to find out how this disability insurance actually works. If it is with your employer and they self-insure, you can easily end up in the same predicament as the former Nortel employees.

The insurance looked like it was being run by SUN Life, but in fact they were simply administrators, and it was Nortel who was paying the bills (which was cheaper for Nortel at the time), but now with Nortel being a bankrupt husk of itself, now things are very different. The disability payments got thrown in with the hundreds of millions owed to vendors, customers and partners, and thus were not going to get paid much at all. As of January the pay outs have stopped and now these folks are living on whatever disability income they can get from the Government.

Conclusions

A good example of doing the right thing and still ending up in a bad place. It is important to understand who underwrites your disability insurance. If it is your firm, this is a big issue.

Other views on this subject.

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Following the Crowd is Safe?

A classic rant from 2011. Always ask why the crowd is going in a direction, before following. Following the crowd financially can be an expensive mistake.

Safety is Relative

So you think following the crowd is safe, because you are with others?

Ask a lemming if following the crowd is a good idea.Better still ask a cow in line at the slaughterhouse. Everyone else is going in this direction, it isn’t safe?

As you can tell I have been on a Risk management course. I am now full of pithy comments about risk and such. Just because everyone else is doing something, you must at least ask yourself if this is the right thing for you. This is true when it comes to your money.

Many folks who were badly singed in 2008 with stocks are looking for safer places to put their money. They think Putting Money in Bonds is Safe (or at least in Bond Mutual Funds, or Bond Indexes). Normally bonds are safe(r), but there is a perfect storm right now that makes this less safe.

Everyone in the day thought Nortel was rock solid and safe. One misguided financial media maven Garth Turner was still sending misguided investors back into the killing fields of Nortel even as the stock imploded. I remember people saying, “If Nortel goes down, Canada is going to be in a bad way“, or “The Government won’t let that happen“. It did happen, the majority of the herd were wrong again here too.

The experts are saying commodities and Gold are a safe place to hide against wars and all the calamities of today. I don’t understand these markets enough to feel safe in them, so I am staying out of them. Living in Canada I am effectively already feeling the benefits of commodities and gasoline. The Canadian economy was continuing to grow thanks to Oil and Commodities, maybe I should hedge some other ways to take this into consideration?

For a non-financial example look at the proliferation of tattoos in younger folks, is this the right decision? I have no idea, but my “not following the crowd” comment to my kids is, get into Dermatology, because in 20 years all those butterflies are going to be condors, and their owners are going to want to have them removed (oh and all those folks getting multiples piercings are going to want them filled in too).

The Herd is Right Sometimes

Most of the time, most of the people make mostly correct decisions. This does not mean there should be a blind following on your part, especially when your money is involved. You must ask questions about why your money should be where it is. Why it should go where folks think it should go, and don’t follow simply because everyone else is doing it.

Remember what your mother used to say, “If everyone jumped off the bridge would you follow them?”, kind of like what I did with Nortel.

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Financial Bondage

BDSM in Finances?

No I am not going to change the blog to a financial bondage site (at least not yet).

The metaphor of handcuffs for many of the decisions in life and in our finances is quite apropos. Many of us struggle with decisions that we have made that force us to stay with the status quo in our lives, and here are the types of handcuffs that I think we struggle with every day.

Golden Handcuffs

Mighty Fine Looking Handcuffs

Gold Handcuffs

The first time I heard of this concept was in the glory days of Nortel, where folks had Stock Options in the company, and thus were bound to stay (at least for a short period of time), until those options were exercisable. This was how most high tech companies used to work (not sure how they work now), but the opposite side of those bonds were, that if the Company stock dropped below the strike value of the options, they were no longer very good handcuffs (the analogy I heard was The Cuffs just fell off, and I am out of here).

Other Golden Handcuffs are things like good pension programs, that someone has a great deal of time as a member. That is the story you hear from many Civil Servants is they don’t dare move to the Private Sector because of their Pension benefits and such. These handcuffs are not as binding, if there is more monetary payment used to entice folks away, but still an important impediment to change.

A good benefits package for an employee has been known as a good employee retention program as well.

A low rate Mortgage can be Golden Handcuffs if rates suddenly sky rocket, but I’ll discuss the converse in the next section as well

Nasty Standard Handcuffs

These are the thornier binding programs that will not let us loose (financially) without causing a lot of pain and damage.

Handcuffs

Standard Smith & Wesson Handcuffs

Typically attempting to extricate yourself from these decisions will cost a fair amount of money.

Cell phone contracts are an excellent example of this kind of punitive retention program, where the customer gets a better deal on a phone, but then must stay with their service provider fora period of time. I know many folks (including me) who regret putting on these handcuffs, but now must live with our poor decision (or pay the price of leaving early).

Some might argue that long term Mortgages can be like this as well. As most of my readers know when I bought my first house I paid 11% interest on my mortgage for 5 years, because at the time that seemed like a great deal, but as the term passed, it was obvious that I had made a blunder financially. The only way to extricate myself from it was to either blend and extend my Mortgage or break the mortgage and pay a 3-6 month interest penalty (depending on when I wanted to break it). In the end I ended up leaving the Barbed Wire Handcuffs on for the entire term.

Car leasing agreements are somewhat like this as well, you are paying a lower amount for a car, but it is very hard to break the lease without some severe penalties (depending on your agreement). I don’t lease cars, so I never really understood the attraction for this particular financial bondage device, however, I do know many folks who think it is a great idea.

Thumbscrews

Thumb Screws

Thumbscrews for a Little Extra Motivation

These financial torture devices really are quite despicable, yet some of us gladly stick our thumbs into them without thinking about the long term effects (or thinking it won’t be that bad).

Zero balance credit cards and don’t pay for 6 month credit deals are notorious examples of these financial pain infliction devices. You start off with the best intentions to pay off the balances, but you forget to make a payment, or you simply don’t choose to pay it off and the device starts to inflict pain. You end up paying a much higher interest rate on the complete balance you had, and now you will have problems ever extricating yourself from this financial trap.

The entire low rate mortgage debacle in the U.S. was based on this kind of excruciating financial bondage mechanism.

I hope the only handcuffs you wear are Golden ones. Please make sure you know what your cup of tea is when it comes to these financial bondage devices (better still steer clear of Financial Bondage completely).

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