In this, my last post of the year, I wish to thank all of you for reading, commenting and contributing. May you all have a safe, fulfilling and joyous holiday season. I’ll be back in 2010 with hopefully new topics to entertain you. My last post is a continuation of yesterday’s post on lessons learned in 2009.

There is elegance (and profit) in simplicity

I sold the last of my mutual funds this year when the deferred sales charge no longer applied. Call it my youthful investing mistakes finally expiring. Now everything I invest in is relatively simple: broad based exchange traded funds, dividend paying stocks, high interest savings accounts etc.

I have posted many times this year about how simple investing products have been overly twisted into complicated ones that serves no one but the people selling it. Jason Zweig gets my vote for quote of the year: ““Sooner or later, Wall Street turns every good idea into a bad one.”

There has been a lot of focus on de-leveraging this year. Now that the Jones are broke, it seems ok for everyone to uncomplicate their lives again. However, people have short memories and we are already seeing the return of good ideas turned bad in investment products. The leveraged ETFs being one of the worst products for overly complicating an average investor’s portfolio.

Want to know how problematic more complicated ETFs are? Class action lawsuits aimed at the ETF market is now described as “a new litigation phenomenon.” 13 class action lawsuits have been filed against ETF issuers between August-November, most having to do with the alleged undisclosed risk disclosure of leveraged ETFs to investors. None of the allegations have been proven and it will interesting to see what the Courts believe is an adequate level of disclosure.

The larger point being is that sophisciated products (asset-backed commercial paper, sub-prime mortgage notes etc) almost stalled the banking system. One should never forget history (see below). Simple is beautiful.

Success is the process of hiring and retaining the right people around you.

2009 is the year the investor struck bad. Articles about suing investment advisors, the statistical improbability of active management beating the market and the excesses of the financial markets became common-place this year and no one just confined to the DIY community.

The exclamation point occurred earlier this month when Jonathan Chevreau’s editors accidentally hung him out to dry by proclaiming in a headline that investment advisors were “spoiled” (writers write the content while editors write the headlines). The author’s attempt to explain the article on two separate occasions most likely spoke to the immediate and negative backlash he received from the investment advisory community.

But there is a far larger underlying point to which I will to defer to Brett Wilson. For those who don’t know, Brett Wilson was a leading oil and gas i-banker in the Alberta oil patch for the last 15 years and, more recently, is one of the judges on the television show Dragon’s Den. I  saw him at a speaking event in the fall.

In a question and answer period, an audience member asked Wilson (to paraphrase): “if you lost it all tomorrow, could you make it all back?” Wilson’s answer was an emphatic “yes” because (to paraphrase again) he had learned to hire and retain the right people. Notice his answer was not “I am the smartest guy in the room” or “I have all the right connections” but he was implicitly recognizing his own limitations and finding people to off-set this.

To revisit a  point I made yesterday about process vs. outcome, we tend to hire investors because of an implied promise of an outcome. But do we have it backwards? If one seeks nothing but high return without an over-arching strategy to achieve it, does one not end up with a salesperson and not an advisor that will sell you magic beans? Should the goal to be to find an advisor that has the right process in place?

I come to this lesson as an employer; I had a terrible time hiring people and I have sat down and asked for a lot of advice on this. Too often, I was attempting to hire for skill-set (an outcome) rather than attitude and personality that add something new to the work environment (a process of creating a more efficient team). More often than not, I also got into the “hire fast, fire slow” routine which many investors also do with their investment advisors.

There are, sadly, terrible financial advisors out there. A system that sets high sales quotas will encourage an environment of fee-taking and sales rather than advice. However, no one puts a gun to our collective heads and demand that you have to stick with an advisor that is not right for you. Again, it is a process to find the right person (whether a traditional advisor or an advisor who is paid by the hour for a 2^nd opinion or no advisor at all).

The key is to hire the right people AND not abidicate to them but engage in a healthy debate towards a common goal.

Being a good student of history will make you a good investor

Past performance does not guarantee future results. But history works in patterns and understanding history, your own and the world’s, plays a much larger role in money than some people may think.

A brokerage house fails due to a short sale gone bust. A bank holding collateral on the trade collapses. A stock run starts. The public starts withdrawing money in a panic. Banks stop lending money. JP Morgan steps in and rescues the situation. Regulatory reform ensues.  Sound like 2008 doesn’t it? Actually,  it was 1907 and it was JP Morgan, the man and not the bank, who stepped in (…and those who want quick regulatory reforms be prepared to wait. The Panic of 1907 lead to the creation of the Federal Reserve 7 years later).

Times change and technology changes but the nature of people do not. If one really wants to be better at personal finance, I would suggest looking at one’s own history and figuring out the recurring patterns which lead to negative results and recognize that pattern and discipline oneself to change it. Making small changes could go a long way in 2010.

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Thanks for reading in 2009. Seeing you on the other side.

2009 was truly an extremely strange and trying year. As someone self-employed, income tends to fluctuate at the best of times. Insert global credit crisis and a larger crisis of collective confidence in the future and you have an environment which, to state the obvious, is difficult for anyone to make a buck. Having said that, failure and adversity are the best of life teachers and success, paradoxically, a very poor one.

As my second last post of the year, I wanted to share a few things lessons learned from 2009.

Personal Finance is a process and not an outcome.

If you are a long time reader of my blog, you will notice that I have ceased really to review individual stocks or companies. This decision is conscious on my part since: (i) many other bloggers do it so well; and (ii) after 500 posts, I see personal finance as a process and not an outcome.

What do I mean by this? An outcome is product. An outcome is a ROI calculation. An outcome, devoid a thorough and analytical process, is often a search for the magic bullet solution.

Seeking outcome means you ask the question: “what should I buy to return me 10% per year?”- a product allocation question- not “how do I need to arrange my personal finances to protect against downside risk and make a moderate amount of money”- a strategic question which only answers the question “what product” at the end of the process and not the beginning.

To frame this distinction another way, think of the tried and true maxims of investing: buy low, sell high, buy companies with economic moats, buy what you understand. These are questions of process and not of outcome. We tend to focus more on what Warren Buffett is buying rather than the thought process behind it.  One would do better not tracking what Buffett is buying but how he arrived at his decisions.

I will give you a recent example of a process versus outcome analysis. I have, as have many of you, been to enough investment seminars where the speaker announces that our government’s fiscal policies (or lack thereof), demographic trends and depleting resources will result in a dark future ahead. What ceases to amaze me is that often the first or second question asked by the audience is “What should I buy?”

That question speaks to outcome without the underlying process (and it also abdicates to a mere stranger one’s decision making). Assume that the economy will have a rough ride ahead. Take stock of your life and determine where you are at and the steps you want to take will result in some favorable outcome.

The process vs. outcome lesson really comes from spending time with some very successful people. When you have a difficult year, you attempt to seek answers from those you consider more successful than yourself. What I noticed when I asked or observed those who I respect is the rigorous process they went through before they actually came to an outcome.

The old saying of: “give a man a fish and he will eat for a day, teach him to fish and he will eat for a lifetime” is ultimately a process vs. outcome saying.

Use the media exceedingly carefully

The Tiger Woods story, in many respects, broke the final barrier between tabloid reporting and traditional journalism. When traditional media outlets engage in tabloid type report-its about speed and not accuracy, no one is fact checking, the story is constantly changing and, quite often, just plain wrong- you know the traditional media is now engaging in the business of screaming at the top of its lungs rather than reporting.

However, caught in a pincer movement between the internet and tabloid reporting, traditional media has probably played the “if you can’t beat them, join them” card. On the personal finance front, this has lead to the Jim Cramerization of the entire medium.

I was in Las Vegas earlier this year and turned on MSNBC. I thought I was watching football commentary. There were 4 panelists and a host just rapid firing information on the price movement of commodities, writing numbers on the screen and going all John Madden on the viewer (“price of gold goes- POW- up and look at the inflation numbers going down- THUMP! Let’s see that again in slow motion…”).  I changed the channel quickly. Personal finance is about your life which I hope is a long one. Life decisions should not be made based on jolts of information on tv.

There are many great columnists out there in personal finance but the medium itself is succumbing to the worst of excesses. Certainly, absorb the information but take everything you see or read with a grain of salt. Things will get worse. The media is fragmenting into specialty niches and the only way that the powers that be seem to know how to get our attention is to increasingly jump up and down and scream the loudest most often.

Avoid dogmatic approaches to personal finance

I blogged earlier this year about attending an investment seminar. What I did not mention was a gentleman in his late 50′s who insisted the only way to make money was through real estate and that the entire stock market was a ponzi scheme. He was willing to tell anyone this that listened.

I encountered this a lot this year. Some people think the stock market is the only way to make money and blame the crash on the bursting of the real estate bubble. Others insist that real estate is the only way to make money and cite the stock market crash as Exhibit A. Some entrepreneurs I know, looking at the masses of unemployed, declare building a business is the true path to financial independence.

I build businesses and I invest in stocks. The former was a real learning lesson for me since, in down times, your margin of error is small and you have to discipline yourself to be great and not just good. As a stock investor, I similarly learned from my investing mistakes (over allocation of financials in my dividend portfolio being the biggest one this year).

I do not believe because I did not experience the success I wanted to in these ventures that they are inherently “bad” approaches to personal finance. My speculation is that dogmatic thinking tends to come from people who experience success in a method and then think the method is the only way to go because of such success (again, success is a poor teacher).

I would suggest the opposite. If you have failed in a method (however one defines failure) but the method is fundamentally sound (have other people of the same age, skill and experience succeeded?), the lesson to be learned should not be the method is bad and give up but one has actually been given important knowledge on how to employ the method properly (knowing what not to do is sometimes more important than knowing what to do).

To answer the question of what is the best method achieving personal finance, I believe the right answer is to find something that works for you (whether real estate, stocks, businesses), learn it and perfect it. Use the mistakes as learning lessons and use those losses to improve on your skills. Most of all, use your energy to make yourself better at it rather than convince everybody else of the rightness of your thinking.

(part 2 tomorrow).

This is my last week of blogging for the year. Thus, although there are still 10 shopping days left until Christmas,  I wanted to share a few final holiday shopping tips and holiday scams to avoid.

Holiday Money Saving Tips

Cash vs. Gift Cards. It used to be considered tacky in North American culture to give cash. Hence, many people have resorted to purchasing gift cards. However, as CardSwap points out, anywhere from 10-20% of all gift cards are never redeemed. Alternatively, gift cards issued by malls, as opposed to individual retailers, tend to have various restrictions on what stores you can redeem the card at.

Gift cards are certainly useful presents if you know the person frequents that particular store. However, if you are buying a gift card from some large chain that the person may not necessarily shop at, your money may have gone to waste. I am of the school of thought to give cash with a nice card suggesting they use the money to their heart’s content if you are trying to buy something for someone who has everything. Obviously, don’t give your boss cash (“I really don’t need to give Johnson a raise this year.  He’s so loaded, he’s giving me money!”).

Use your credit card points for more than just travel miles. I wrote about this several weeks ago but I am cashing in my Visa Avion points to buy a wide variety of presents. I end up saving a lot of cash that way.

Ask for the boxing day special. Although many retailers have already priced their goods to liquidate, it never hurts to ask for a boxing day special now. Retailers have had an extremely rough run this year and anything that converts inventory into cash will be a welcome offer (as long as it is not insulting).

Ask for a rain check at the holiday sale price. Even though the item may be out of stock, you might as well lock in a lower price by asking for a rain check.

Holiday non-deals and Scams

The holiday non-deal. I received a mailer from Bell promoting that “Boxing Day comes early this year” by offering high speed internet for $26.95 per month with a little “1″ footnote beside it. Flip to the footnote on the back page.

Here are the actual terms and conditions: (i) the cost is not $26.95/month but $41.95 less a $10 credit for first year and a $5 Bell Bundle discount; (ii) the offer only applies if you sign up for the “Bundle” (which I am assuming is television, cell-phone and internet) so add the cost of canceling your cell-phone or cable if you are not a Bell customer; (iii) a customer must pay the following extra fees: (i) $29.95 one time activation fee (waived if you are a Bell TV subscriber), $3.95/month modem rental, $2.00/additional GB above $25. I am not picking on Bell per se since their mailer is typically of many holiday non-deals.

As lawyers say, the big print giveth, the small print takenth away. It is easy to be fooled by the holiday non-deal simply because there is so much happening that you do not focus on the details. Remember always to read the fine print. Many businesses will extend deals past their expiration date if you ask nicely. The key is to sit down in a quiet place and understand the deal if the offer is some type of long term commitment (like internet or cell phone).

Fake charities canvassing for money. A common scam during the holidays. The FTC has a very useful list of signs that the charity approaching you may actually be part of a charity fraud. It is unfortunate that people would stoop to such depths but just remember a few bad apples should not taint the good work many legitimate charities do all year around.

The free sample online offer. Ellen Roseman has an article on the pitfalls of the free sample on line offer.

eBay and CraigList fraud. Be extra careful on eBay purchasing from a vendor who has little to no history on eBay. They are either out to make a quick buck (legal but they will attempt to extract a punitive price- I remember trying to buy a Wii Fit last year and people were selling a $100.00 item for upwards of $500.00) or are fly by night operations who never intend to sell you anything and are engaged in fraud.

I am honored to be included in Triaging My Way to Financial Success’ best of blogs 2009. There are lots of good articles and tips from each of the bloggers and I would encourage people to read through all of them. With the year ending about Tiger Woods alleged ability to, ahem, multi-task on and off the golf course, 2009 is truly about exposing the life of celebrities trashy tabloid style. After all, with the economic picture so dark what are people to do but to be noisy about the lives of others?

Amid all the scandal through, there are actually personal finance lessons to be learned from the rich and (in)famous this year. A few examples immediately come to mind.

Jon and Kate Gosselin. The craziest parents ever to raise 8 kids taught us a valuable lesson this year about joint bank accounts when Jon emptied their joint bank account of $200,000. But for a court order freezing that account prior to the withdrawal (and Jon having to return the money lest he be found in contempt of court), Kate would have had no recourse. The morale of the story is truly trust the co-signatory of your bank account since there are few controls over one party withdrawing money against the wishes of the other. Having said that, what you can do is have the bank notate that any cheque or withdraw over a certain amount of money requires dual signature.

Miley Cyrus shut down her twitter account this year. Supposedly, she figured out if you tell people the most intimate secrets about your life on the internet, they actually become public knowledge and can be used against you. Like, this is so shocking! O-M-G. Tell your BFF!

With tale after tale about people losing their jobs or insurance benefits over improper use of social media, let us remind ourselves that social media, despite its utility, can be an invitation into your private life and all the consequences, good and bad, that come with it. Parents- please do have a conversation with your kids about social media; it is the Trojan Horse to your privacy.

Glenn Beck, voice of the American political right, is getting flack for alleged conflicts of interest in promoting the purchase of gold on his shows. His reasons, as I understand it, to buy gold is that gold is the only true investment when the economic system collapses. There’s two interesting lessons here.

Glenn Beck may be great at being a media personality but I am not sure he’s the best investment expert out there.  But there’s a certain strain of personal finance that worships the cult of the expert (self-declared or not) over prudent strategy. If 2008-2009 taught us anything, experts are just as fallible as the non-expert; they are just better at getting attention. Strangely, this lesson does not seem to be sticking. Secondly, when main street starts telling you to buy gold, it may be a sign that a gold bubble is forming. Answering the question “when” is just as important as “what” in personal finance and life in general.

Michael Jackson and Ed McMahon both passed away this year. Both made literally millions over the years. McMahon died broke and Michael Jackson died a lot poorer than he should have been. The lesson yet again is it is not what you make but what you keep that matters.

Finally, Tiger Woods crashed his GM SUV while going for a drive/escaping from his enraged wife/under the influence/insert own TMZ inspired story here. Now there are whisperings the sponsors may be leaving the Tiger Woods brand as stories circulated that Tiger may have allegedly kept 10(!) mistresses. The lesson once again is character matters first and foremost in life since money comes and goes but character is forever.

On a lighter note, after Tiger crashed, the air bags failed to deploy. Onstar did not switch on and the front door was jammed shut. This all despite the police reporting the crash was at low speeds. Is this the final confirmation that the GM bailout was not a good idea? No wonder the CEO of GM quit soon thereafter.

Standard & Poor’s reported that it anticipates dividend payers in the S & P 500 to raise their dividends by 6.1% in 2010. This would represent the first time since 2007 that dividends were raised. Assuming this comes to pass, what dividend yielding stocks will raise their dividends faster than others? What are some key signs to look for to predict that a company will raise its dividend in the near future?

Dividend payout ratio begins to decrease. Given that dividend payout ratio is determined by dividends paid per share over earnings per shares, the ratio tends to move downward if earnings per share increase. However, the one thing to keep in mind is that a decreasing dividend payout ratio does NOT mean a company will necessarily increase its dividend.

Most companies have ideal dividend payout ratios. In most cases, a company will not declare a dividend increase unless the ratios come back into their optimal range. For example, most financial institutions have an ideal dividend payout ratio of 35%-50%. TD Bank Financial Group’s dividend payout ratio was 70.3% as of the 12 months ending October 31, 2009 as opposed to 49% in the prior 12 month period.

In other words, it is unrealistic for dividend shareholders to simply ask for a dividend increase as soon as the company begins to return to profitability especially in the battered financial services industry.

Earnings must be sustainable. Given that dividends are “sticky”, companies are loathe to increase them unless they know that the medium to long term financial prospects of the company are bright. Many companies were able to turn profits by cutting costs; over time, an over-reliance on this strategy is not a recipe to build a good business. RBC has already indicated that trading profits from 2009 are simply not sustainable over the long term; in other words, it was a blip caused by how badly the market had crashed.

The end result is that attention must be paid to the quantity of the earnings going up as well as the quality of the earnings in order to support continual increases in dividends over time. Typically, this is created by organic growth over a wide variety of product lines (hence, most tech companies are not dividend payers; they are typically one-trick ponies in terms of product lines). A good example of organic earnings growth company would be Johnson and Johnson (with a very healthy dividend payout ratio of 41%).

Cash on hand. On a simplistic basis, a board of directors must decide whether cash either goes back into the business or back to the shareholders. If the company has relatively little cash on hand, logic dictates that the money should go back to the business. If the company has a lot of cash on hand and earnings begin to go back up, it will have greater opportunity to increase dividends.

However, what is important to note is that increasing cash on hand must be balanced by what the cash should be earmarked for. If there are more pressing needs than returning monies to shareholders, looking simply at cash on hand is not a good metric for anticipating dividend increases.

For example, let’s take a look at RioCan REIT. It has a cash on hand of approximately $215 million as of September 30, 2009; a not insubstantial sum given real estate use up a lot of cash. However, in its financials for the period ending September 30, 2009, it reports it is paying 34.5 cents to each unit-holder but it is only making 27 cents a unit from adjusted funds from operations (a non GAAP measure for real estate companies). In other words, it is paying out more than it is making.

In addition, RioCan has been issuing more units for acquisitions and general operating funds; the latest being a $10 million raise in November. Thus, while there appears to be cash on hand, it should be committed towards obligations, particularly its shortfall on monies paid out to that taken in, other than increasing its distribution. In this light, a distribution hike should be viewed skeptically.

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The above factors are some items to consider. Put them together and an ideal candidate to increase dividends tends to have the following characteristics:

1. The Company remains in its ideal dividend payout ratio zone (most companies will tell you want that zone is in its financials);
2. The Company is growing organically and not relying on some blip to increase earnings that cannot be repeated over time; and
3. There are no pressing needs for its cash on hand that would take priority over returning money to shareholders.

As a typical year end tax planning tip, numerous articles will recommend that you give to charities to receive a tax credit. Whenever I think of giving to charity, I think of my Dad telling a poor fund-raiser over the phone that he would only give money to their charity if they disclosed the amount of money spent on administration. I am sure this poor fund raiser did not have the answer on their finger-tips. But my Dad is typical of the cynical belief that too much of our charitable giving is spent on administration and not on the people who really need it.

For those who want to make sure their dollar is being used most effectively, how much is too much administration? How do these numbers get manipulated and what are some better charities to give to?

As a quick and dirty over-view, a charity’s financial performance should be generally judged under 4 large criteria (there are more but focus on these 4): (i) program expense: the higher % spent on programs over total donations the better; (ii) general administration- this is self-explanatory; (iii) fund-raising expenses; and (iv) fund raising efficiency- this is either calculated as: (a) the amount of fund raising expenses spent to raise $1.00 (the lower the better) or (b) to work it to the other way around, how much is left of each $1.00 raised after deducting expenses (the higher the better).

Here’s how the media can manipulate your view of charities if it wants to.  You take general administration expense and you add the fund raising expenses and you report on the total of the two as “administrative expenses.” Alternatively, take one bad apple and use that to paint the entire industry (remember it is news because it is an exception not a rule). Everybody gets mad. Charities issue denials.  Dads in households everywhere berate fund raisers about their administrative costs.

The issue with the above approaches (besides the gross manipulation of how you should think) is: (i) that it removes the revenue side of the equation from the fund raising expense. It would be tantamount to ignoring money brought in by your company’s sales team and seeing them only as an expense without any recovery; and (ii) it lumps all charities together whether they are good or bad and there are good ones and bad ones. For example,  museums have much higher expenses than food banks since the former has a bricks and mortar operations to maintain and the food bank primarily does not work on cash. But if one reported museum ABC is ineffective compared to food back XYZ, the poor museum would have a riot on its hands.

However, if you were absolutely forced to lump all charities , if you donated to one of the 200 largest charities in the U.S.,  Forbes Magazine estimates that 86 cents of every dollar donated to a charity went into programs. Using a much larger pool of 5,400 charities, Charity Navigator, which evaluates the health of charities in the U.S., reports that 7 of 10 charities spend at least 75 cents on the dollar on programs and the other 25 cents on fund raising and administrative expenses. Most of the literature I reviewed indicated administration costs of over 15% was excessive; please remember the limitations of comparing charities aiding different causes and not to imprint 15% as the mark for all charities.

The other expense that can be lumped into administration is fund raising expenses. The question with fund raising expenses is not whether a charity should spend money to raise money but how efficient is it raising money. On this front, the data seems pretty consistent. On the top end, if a charity spends more than 9 cents to raise a dollar, it is not using your charitable dollar wisely. Again, there are large variations on efficiency depending on the type of charitable organization. A food bank gets lots of free advertising. A hospital has to pay for expensive ads in print, radio and television.

Charities are like any other industry. There are good ones, bad ones and indifferent ones. Here are several tips to make the most of your giving:

Accept the fact there are administrative costs. People do not come to an auto shop and demand that they want to pay for a tune up after the costs of the book-keeper, accountant and the guy who answers the phone out front are taken out. No business can run without administration. The key is how much is too much?

Give direct rather than to canvassers. Professional fund raising bodies take commissions first before any of the money go to the programs. Make your charitable donation count by giving to the source.

Research how does the most with your dollar. Charity Intelligence Canada recommends charities in various fields. Charity Navigator does the same in the U.S.

Give local and community based. This is a personal bias since I volunteer at a local and community based charity. The big charities attract the corporate money because of the high profile it gives to its donors. The well-run community based charities get no glory but do equally hard work and in your community.

Finally, if you cannot afford to donate money to charity, donate your time. In many respects, charities need skilled volunteers more than money. If you believe a charity is truly not using your money wisely, volunteer and make a difference by other means.

Our regular columnist, Mom2KG, tackles the age old debate of whether to re-gift or not to re-gift

The holiday season is upon us all. We are making lists, and shopping so frantically that the magnetic strips on our credit cards are crying for mercy. But do you really need to buy something for everyone? Do you have a pile of gifts you’ve received in your basement, wondering what to do with them?

Yes, re-gifting. An eternal etiquette question we’ve all pondered. There’s Aunt Myra’s lovingly handmade doily set. You can admire the time and effort and skill, but doilies? Who the hell uses doilies anymore? On the other hand, there’s the pile of clothes your toddler got from in-the-know friends, complete with gift receipts. You’re never going to use the doilies, and some of the kids’ clothes don’t fit your child. What to do?

Pros:

• Re-gifting saves money and, however slightly, reduces consumer consumption and environmentally-unfriendly packaging
• The original gift-giver never needs to know
• Some recipients don’t mind receiving a re-gift (of course, you don’t have to actually tell them)

Cons:

• The recipient, if told of the provenance of the gift, might think you’re cheap, tacky or even a jerk
• The original gift-giver might be very offended you did not use, love and appreciate the gift
• You cannot do this as a matter of course; you have to still give an appropriate gift.

Tips for re-gifting:

• Know your giftee. If they are going to be irritated or offended at a re-gift, either don’t tell them, or just don’t do it at all
• Don’t re-gift to get rid of crappy stuff you have. If you don’t want it, your brother doesn’t want it either
• Keep track – do not re-gift the same thing back to the original gift-giver
• Make the gift special – re-wrap it, write a nice card, make sure it’s clean and unused, and something the recipient will enjoy
• Don’t re-gift items that have been used, worn, tried out, or even removed from the original packaging.

Good luck and happy holidays to all.

With the job market being competitive, potential employers are finding ways to differentiate between the numerous good candidates seeking a job. Although some employers have traditionally not called references in good times, reference checks are often used in bad times to help make critical job hiring decisions. Employers in down times have less resources to recover if they hire poorly so they nit-pick more over job seekers.

If you are looking for a job, there are a few things to note about your references.

Ask first. This seems really simplistic but if you do not ask and receive permission to provide a POSITIVE reference, they may be caught off-guard which tips off an employer that: (i) you do not respect people’s time; (ii) you are not prepared; and (iii) you are potentially self-centered.

There are laws about what previous employers can and cannot say about you on reference checks in certain jurisdictions. On a very general basis, ex-employers cannot lie and, fearing litigation, basically indicate when you worked and that’s it. Thus, it is important you confirm someone will give you a positive reference by asking first.

Keep it current: I tend not to call any references where the job applicant has not worked at the employer for more than a year. The memory is too stall and a lot of things have changed in the past year. If you have been unemployed for a long time, this is another reason to volunteer. The volunteer organization can provide a more current reference for you and volunteering tells the potential employer you have a strong work ethic and a sense of community- both key factors in landing a job.

You are going to have a hard time finding a job if you have no references from your previous employer. It is a troubling sign to a potential employer if you have no confidence that a previous employer will say something positive about you. If you are listing a previous employer, make sure whatever story you tell in the interview about why you left is consistent with what the employer will be telling your potential employer.

The “gotcha” trend in reference checking is to call co-workers or supervisors who are not on your reference list and to ask questions (welcome to a world run by TMZ). This may not be particularly fair but it reinforces the old saying that you should never burn any bridges in life. If the employer comes back and asks you why an off-reference list person gave you an indifferent reference, avoiding bad-mouthing the person and indicate you never saw eye to eye on matters.

If you truly left on terrible terms with your ex-employer, be pro-active and bring it up in the interview. On a factual basis, tell your interviewer what happened without being bitter and what lessons you have learned. Then list a former co-worker as a reference who can attest to the context of why your last employment experience did not go well (“Charlotte had a difficult boss but she fought through it to be a productive part of the team”).  It is better than the potential employer being surprised during a reference check.

Brief your references. If you are past the initial screening interview, you may want to speak to your references on the type of job you are looking for and what the employer is asking. If they keep probing about your technical skill or lack of experience, your reference should be able to address those questions constructively (“she’s carries herself far beyond her years” or “he picks up things quickly and learns a lot by observing”).

You may want to have a friend call your references to see how they perform and what they say. Most people do not give references for a living so sometimes the wrong things are said out of nervousness (“Jim’s a great guy. We use to close up every Friday night drinks in the company lounge just drinking and talking until they kicked us out.” Oops.)

Avoid bunching your references to one employer or organization. This may be harder for young workers looking for a job but the cold hard truth is that employers look for any reason to reject a candidate. References from one employer, especially in  a job where you did not work long, could raise suspicion that you were a one hit wonder or you have no life outside work.

Try to spread your references among employers, suppliers, customers and community organizations. It shows you are generally well respected by many different groups. In the legal profession, the best references are often from opposing counsel who respected how you conducted yourself.

Best of luck.

What constitutes a “proper” risk allocation has a certain reflexive answer to it. The general rule is take 120 – your age and this should be the percentage of your investments in equities (100 – your age for the more conservative set). However, the entire equation lacks a certain contextual perspective. As Larry McDonald highlighted recently, one of the more informative pieces I have read this year is an interview with economist Moshe Milevsky on human capital and assessing risk. His point fundamentally being is to take stock of your life, above and beyond your age, and to asset allocate and determine risk accordingly.

Ever the economist though, he tends to think of households as inputs and outputs and your compensation as “human capital” as opposed to speaking in plain English.  But his point seems to highlight something I have heard and seen lately on at least the high net worth advisory side; a certain movement away from the rule of 120 and towards a more contextual approach to asset allocation. Let me try to illustrate in real life terms.

At a recent investment seminar I attended, an audience member asked “is there ever a case for holding an all fixed income portfolio?” The advisor’s answer was that one of his clients was an equity trader. Given that his entire compensation is based on the state of the equity market, his entire portfolio was in bonds to mitigate against downside risk.

The point that the advisor was making is that your asset allocation should flow from how you are compensated first and foremost since you can’t invest if you don’t make any money but your investments should not strictly follow the same strengths and weaknesses of your income source.

To drill down one more level, let’s divided this up into real life scenarios:

Your primary source of income is secure and your retirement safe.

The fully pensioned (defined benefit pension at that), life-time guarantee of employment is rapidly become the Dodo bird of employees (public sector union beliefs notwithstanding). But while we still have this class of employees, as Milevsky points out, why isn’t  the asset allocation of this type of employee tilted towards more “riskier” ventures since employment income is basically assured and retirement benefits exist.

Your primary source of income is tied into the public markets.

As Nortel employees found, the life of an employee in a publicly traded company can be a dangerous one given: (i) the security of your job is not only vulnerable to the regular risks of holding a job but also public market risks- have a few bad quarters and the street is indirectly asking for your job to improve earnings;  and (ii) compensation such as employee stock option plans can quickly be worthless if your company/employer performs poorly. Hence, the traditional advice not to invest too heavily in your employer (one of the personal finance lessons of the Enron collapse) is really one born of proper asset allocation.

In this type of situation, the proper analysis would be to weigh more heavily than usual in lower risk, lower return investments the more your employer is a smaller publicly traded company since one’s employment is slanted towards higher risk, higher returns (raises and bonuses). Even earning “safe” employment income, the source of that income may be risky and investment choices should recognize this fact.

You are self-employed.

Income fluctuates. The good months are great. The bad months are terrible (and often cash flow negative given most owner managers have to put money in during bad months). Sounds a lot like the equity market doesn’t it?

Building a business is a boom/bust proposition. A conventional asset allocation approach may have to be amended for some lower risk investments to smooth out the fluctuations. Consideration should also be given to liquid assets at relatively the same price as purchase in the event you are required to infuse the business with capital (which is why contributing to a TFSA may be better than a RRSP for self-employed people- withdrawals are without penalty).

Given income production tends to be “riskier,” investment choices should ideally be less risky.

You live in a boom/bust region.

Geography is rarely mentioned in asset allocation but if you lived in central Alberta since the early 80′s or worked in Dubai for the last 10 years, you understand how you can be paid like a king one day and told by the king the next that he has no money (literally in the case of Dubai). If you happen to live in a boom/bust region and your employment is tied into what makes the region boom and bust, you may want to consider an asset allocation strategy that is influenced by some counter-cyclical-ness to your region’s fortunes.

Your employment is seasonal or part time.

Fish disappear. Summers can be cool. Winters can be warm. They may not call you back next season. All these factors require some adjustments to conventional asset allocation towards less risk. These types of situations may also require a lot more cash on hand as part of an asset allocation strategy.

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Age is certainly a factor in proper asset allocation and risk management. However, it should not be the only one. Individual life contexts should be the anchor of a successful asset allocation strategy.

In fields which we are  not experts, we tend to be heavily influenced by perceptions given to us through television. For example, when the television show CSI first made it big, a lot of prosecutors lamented that juries wanted a full DNA report, which can cost tens of thousands of dollars, in order to convict an accused for charges as  simple as shop-lifting.

In a similar vein, when we think about negotiations we think about actors screaming at one another across a table, banging their fist, crying to the heavens in anguish over the other party’s position and generally making a scene. But, more often than not, professional negotiations tend to advocate their positions without overly dramatic displays or scorched earth phrases (negotiations with unions tending to be a notable exception lately).

The point of effective negotiations is to arrive at an ideal position and not to inflict emotional harm on the other side (unless this is a bitterly contested divorce). Unfortunately, for many who do not negotiate often, poisonous or ineffective phrases and terminology are often thrown around, as seen on tv, which can move a person negotiating further away from their intended position. A few notable examples includes:

“You L-I-E.” You say to hurt. Not to advance a position. Go home tonight and the first time a topic comes up that needs to be discussed with your spouse, tell her she’s a lair. See how the rest of your night goes.  Hope your couch is not lumpy.  The problem with telling someone that they lie is that you are assuming you know what’s in their head and I have met few mind-readers in my time. Alternatively, even if you have the incriminating piece of evidence, what exactly is the point of calling them a lair as opposed to using that evidence to your advantage without resorting to name calling?

For example, assume you are buying a new car. If the dealer insists that they have the best price in town but you have a better quote from a dealer downtown in hand, even if the dealer said it was impossible, you are better off showing the quote than telling the dealer he is lying. It may not get you a better deal but at least the dealer is less inclined to stick it to you if you told him he was a liar.

“Trust me” or “I am giving you a good deal” Why are you tell me to trust you? Are you attempting to cover something up or you trying to counter-act a reputation you have? Why do you need to tell me its a good deal? If I am a prepared negotiator, I know its a good deal without you telling me.

“Trust me” and “I am giving you a good deal” are subtle or not so subtle, depending on the negotiator, ways to brow-beat you into a deal.  I often equate good negotiators to good con-men; both are so good at their job that you don’t realize you are giving away the farm because they have framed the conversation so well (read anything on Bernie Madoff’s manner of attracting money and he’s never telling his investors to trust him or it is a good investment). But rarely have I heard a good negotiator say “trust me.”

“This is my final offer…” Please don’t say this unless you absolutely mean it. If you don’t, a good negotiator will run roughshod over you since you have no defined walk-away point or you have one but do not have the willpower or discipline to enforce it.

Your alternative to “this is my final offer” is to use the element of time rather than money. Indicate you have a hard stop at whatever time and stick to it. People, especially salespeople, hate spending time and having nothing to show for it; very few people can spend a lot of time in a mall without buying something for this same reason. Real estate agents do this all the time. They give a very small time frame to submit an offer or to counter-offer. By creating a time scarcity, they sometimes successfully drive up the price.

The other alternative is basically show indifference if they turned down your last offer. Call this the “playing hard to get rule” of negotiating. You really wanted to date that cute guy in high school because he just didn’t care if he went out with you or not. If you are indifferent to your last and final offer being turned down, the other side may compromise simply because they can see they are losing the deal or move on which really means they value the subject of negotiations more than you ever would.

“I have someone else interested…” This is negotiating strategy 101 employed by used car salesmen. Anyone who is savvy will see through this. Think about it. If I have an offer in hand which I am happy to take, why have I not taken it already? Either the offer is not that good or I am very greedy and want more. In other words, the other offer is not a serious offer or you are negotiating with someone very greedy.

On the other hand, this is a great phrase to use on inexperienced, or emotional, negotiators which is why real estate agents use it to such great effect; real estate is an emotional investment and people do not buy a lot of real estate in their life times. Conversely,  no one really uses this phrase for a product devoid of emotional value. The photocopier sales person at your office is not using this line to sell his last copier.

I once negotiated for a client with someone who used this line 3 times in a 15 minute conversion. This is the first tip off that he really did not have another offer (works in a similar negative manner as saying “trust me”). When I told him that I was happy for him to get such a great offer over market and he should buy me a drink once he accepts and closes, he paused for a second and changed the topic. He never brought up the phrase again. He called the client the next week and lowered his price.