The Time Has Come (the Walrus said) Archives

Off to the Quacks

I’ve got a very sore swollen throat. It’s been coming on for a couple of days but today it’s so bad I need to see the quack.

They open at 8:30, so I rang this morning at 8:27.

To get in to my preferred Doctor I need to wait until 3pm. I can see one of the others at 11:15.

Once upon a time I used to be able to call, and they could squeeze me in early in the morning when things were not very busy.

A couple of years ago I found out that the Federal Government has placed a cap on the number of patients a Doctor can see each day, ostensibly to prevent over-servicing / under-treating. This means that at my local general practice now, if they squeeze anybody in early in the day, there is a slot late in the day that needs to be kept empty – because if they exceed the daily quota they get in trouble.

Not many people know this – there is lots of bleating about how long it takes to get in a see a quack when you are sick, but few know that the glorious Federal Government is to blame.

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Political rant:

The other reasons it is the fault of the Federal Government is that they restrict the issue of Medicare provider numbers, and restrict the number of university places for educating new folks.

The AMA can also take some of the responsibility because they have managed to preserve a closed shop all this time. Try and get nurses to do more? Howls of outrage from the AMA!

How many people know that the AMA is the trade union for doctors? It is! How many people know that only about 50% of doctors are members of the AMA? The professional standards body for the quacks in the Royal Australian College of General Practitioners.

Demotivators

Y’know those motivational posters… “Teamwork” rah rah rah and all that…

Check out the demotivator posters you can get from despair.com.

Gee I’d love to put some of these up at the place I used to work (in place of the inspirational crap they had all over the place).

Derivatives

For all you investors and wanna-be investors out there, be like Elmer Fudd: be vewy vewy careful… of derivatives.

Derivatives can make you a profit, but you need a great deal of skill and time to do so. You also need to be happy to carry high levels of risk, and to wear very large losses.

What is a derivative? Anything that’s not a hard, tangible asset. Examples that quickly spring to mind: options and contracts for difference (CFDs).

For fear of legal action I cannot mention the names of companies touting “schemes” to make you rich by trading in derivatives.

Instead I’ll quote some wise words from Warren Buffet in his 2004 annual letter to shareholders:

Though derivative instruments are purported to be highly liquid and … we have had the benefit of a benign market while liquidating ours … Like Hell, derivative trading is easy to enter but difficult to leave. (Other similarities come to mind as well.)

The real test of the earning power of a derivatives operation is what it achieves after operating for an extended period in a no-growth mode. You only learn who has been swimming naked when the tide goes out.”

In the Australian market in the last couple of years, a dead donkey could show a profit. The real test (as above) is to look at performance when markets are flat or falling.

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Warren Buffet is Chairman and CEO of Berkshire Hathaway, Inc, and one of the worlds richest people. He built his fortune (and that of his shareholders) purely by careful investment in the share market.

A virtuous circle

Been thinking a bit about investing and borrowing.

Using a margin loan to buy shares, the shares bought are used as security for the loan. It’s much like buying a house – the house can be sold to pay off the loan. With a margin loan, the shares can be sold to pay off the debt.

Typically, margin loans are used at gearing levels that involve what I think is too high a level of risk. For example, at 70% gearing you would have some value of shares where 70% is paid for with borrowed money, and 30% with real money. Many margin loans allow gearing of 70% to 75% depending on the shares in the portfolio. Strangely, many lenders seem to encourage these crazy levels of gearing.
It can all come unstuck if there is a sudden fall in the market. The effect of a fall is the value of the shares drops, but the debt is the same. This means the gearing ratio goes up. Then you might get your friendly banker ringing with a “Margin Call” – which means you have 24 hrs to stump up the cash or they will start selling shares. Of course the sale is at the prevailing market rate – and if the market has fallen you are looking at taking some nasty losses.

It is much safer to keep the gearing ratio quite a bit lower – 30% to 40% is my threshold for a sufficient margin of safety (if you do the maths, about 35% gearing will let you survive about a 50% fall in the market).

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There seem to be two common approaches to borrowing to buy a house to live in:

1. Pay off the loan as fast as you can to make it go away; and

2. Don’t bother to pay it off because the money is cheap.

All fair enough in their own way, depending on what your goals are and your degree of comfort with debt.

When it comes to investing, the same two approaches seem to apply.

In the first case, the idea is that you pay off the debt (if you took any on at all) and live off the earnings.

In the second case, the idea is that the asset appreciates in value at a sufficient rate that you don’t ever worry about the debt (essentially – the rate of growth of asset value is greater than the interest rate). Then, live off drawing down equity – ie make the debt bigger – when you want cash.

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Here is another, though slightly more complex idea – mainly aimed at margin loans for shares. Just a new twist on an old idea.

Use debt as a source of funds for opportunistic buying, but keep it under control:

- Buy shares in companies you have loads of faith in, when they have a scandal or fall on (short lived) bad times.

- Pay some of the debt down from salary or earnings from the shares bought, so that there is more debt available the next time an opportunity comes up.

- Aim in the long term to have a retirement fund that might have some associated debt – just not enough to worry about.

- Keep the gearing ratio low.

The nice thing about this approach is that the incremental cash cost of using it is very small.

Time for a worked example: suppose I have no cash but I do have a some assets, and a margin loan with low gearing. Then I see Kick-ass Consolidated shares going for a good price, and giving (say) a dividend yield of about 5%.

If I have to use cash – tough – I lose because I don’t have any.

But if I buy using debt, I’ll pay about 8% interest on the borrowings. If I get a 5% dividend yield, fully franked, that is an equivalent interest rate of 7%. So the dividends are paying the debt for me, and the cost to me (to prevent the debt from rising) is the difference in interest rates: 1%.

This is a pretty neat deal: If I can buy an asset, and use the cash flow from the asset to pay the debt used to buy it, then I only have to make up the difference. If I can find that 1% of the purchase price, then paying the interest on the loan means you get the capital growth of the asset for 1% down. Potentially this is a very big return. I need to pay that 1% forever, though!

$10,000 purchase of Kick-ass Consolidated – all bought on debt.

Return is $500 per year + franking credits, effectively $700 per year.

Interest on the loan is $800 per year.

So to control $10,000 worth of Kick-ass, I only need to find $100 per year.

Now suppose that I can find (say) 20% of the cost price… lets use some numbers:

I buy $10,000 worth of kick-ass, using debt.

Results as before…

Now I get $2000 from Uncle Freddies inheritence, and pay that straight off the debt.

Return is still $700 per year.

Interest cost is now $8000 * 0.08 = $640 per year.

I can now do nothing and the asset will eventually pay off the debt entirely. Compound interest works in my favour, and the reduction in the loan gets faster each year.

Once the debt is reduced a little, I can go buy something else. The debt goes up, as does the income, and the first asset is helping pay for the second.

And so on, and so on…

Trouble with the above approach is that it is using a very high level of gearing (80%), so I’m at risk of a margin call if the price falls.

If instead you were to reverse the figures, ($2K debt, $8K cash) then the interest charges are well and truly covered, the likelihood of a margin call is dramatically reduced, and when you get the opportunity you have plenty of equity cover already in place to take advantage of opportunities that crop up.

Low to moderate gearing thus forms a low risk, cash-flow positive virtuous circle, where the more you own, the more cash you generate, so the more you can buy.

The kicker is that if you are very patient, and buy quality assets on bad news, you stand a better chance of getting some very nice capital growth thrown in as well.

And with the share market – time in the market is very important. The sooner you start, the better off you will be.

The thing that requires the greatest discipline is patience – it is far better to buy nothing, than to buy something that is too expensive.

Comments welcome!

Getting fat

I spent 40 years eating any and everything, and never getting beyond extremely thin.

Now I’m past 40, I’m turning into a fat bastard.

It starts with the tum getting a bit bulgy, and its really hard to prevent.

Damn damn damn.

Jesus

This came in from David, and I quite liked it:

An Australian, an Irishman and an Englishman were sitting in a bar.

There was only one other person in the bar; a man. The three men kept looking at this other man, for he seemed terribly familiar. They stared and stared, wondering where they had seen him before, when suddenly the Irishman cried out, “My God, I know who that man is. It’s Jesus”. The others looked again and, sure enough, it was Jesus himself, sitting alone at a table.

The Irishman call out, “Hey!, you!!! Are you Jesus?”

The man looks over at him, smiles a small smile and nods his head. “Yes, I am Jesus” he says.

The Irishman calls the bartender over and says to him “I’d like you to give Jesus over there a pint of Guinness from me.”

So the bartender pours Jesus a Guinness and takes it over to his table. Jesus looks over, raises his glass, smiles thank you and drinks.

The Englishman then calls out, “Errr, excuse me Sir, but would you be Jesus?”

Jesus smiles and says, “Yes, I am Jesus.”

The Englishman beckons the bartender and tells him to send over a pint of Newcastle Brown Ale for Jesus, which the bartender duly does. As before, Jesus accepts the drink and smiles over at the men.

Then the Australian calls out, “Oi, you! D’ya reckon you’re Jesus, or what?”

Jesus nods and says, “Yes, I am Jesus.”

The Australian is mighty impressed and has the bartender send over a pot of Victoria Bitter for Jesus, which he accepts with pleasure.

Some time later, after finishing the drinks, Jesus leaves his seat and approaches the three men. He reaches for the hand of the Irishman and shakes it, thanking him for the Guinness. When he lets go, the Irishman gives a cry of amazement. “Oh God, the arthritis is gone,” he says. “The arthritis I’ve had for years is gone. It’s a miracle!”

Jesus then shakes the hand of the Englishman, thanking him for the Newcastle Brown Ale. Upon letting go, the Englishman’s eyes widen in shock. “By jove”, he exclaims, ” The migraine I’ve had for over 40 years is completely gone. It’s a Miracle!”

Jesus then approaches the Australian, who has a terrified look on his face

The Aussie whispers … “P*** off, mate. I’m on workers comp.”

End of an era

Big surprise. Panasonic have been making televisions in Australia since about 1968.

Now they are the only Australian manufacturer of TV’s left.

Today it was announced the factory will be closed.

Power Failures

We were out for dinner on Saturday night. Stinking hot, but our hosts had the a/c going so it was nice inside.

About 10pm, everything went off… and stayed off. The temperature inside rose higher and higher. It was about 36 outside, and around 33 inside by the time we left about midnight.

Power in that area was finally restored about lunch time Sunday – when the faulty transformer was replaced.

Thanks to David, our host, for these neat photos of the transformer that caused all the fun!

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If people do not wish to be helped…

I was driving home from work yesterday, and happened to change to ABC Radio National (729 AM in Adelaide).

They were (re-) broadcasting a lecture from the “Second Regional Economies Conference: The invisible world of ideas, passion, and entrepreneurs”, by Ernesto Sirolli.

This was fascinating, because he spelled out some very clear ideas for how to help communities that are seen as less well-off, underprivileged, etc.

To quote:

After 40 years of international aid to Africa: the poor are poorer, the rich are richer, and the gap between the two has widened… 40 years of aid has been a disaster… we came and found them poor, now they are poor and in debt.

Now, after these bitterly learned lessons, he uses as a starting point, a book written in 1973 by an English economist (German born) Ernest Schumaker called “Small is beautiful (economics as if people matter)”.

He now uses, as a starting point for his work (and after the bitterly learned lessons in Africa) a direct line from this book: “If people do not wish to be helped, leave them alone” This is the first principle of aid…

And he goes on to explain that aid has (and still is) provided because of ideas like “moral obligation”, rather than being invited.

This lecture runs for 50 minutes – so take some time out and listen. You will need RealPlayer or Windows Media player, and can find the audio on line here: RealPlayer or Windows Media Player.

I was very interested in the next part… when people do ask for help, who do you listen to? Not always the well-meaning people (civic leaders and so on) who may know there is a community problem, but they don’t have the wherewithal to find solutions. The story about Esperance (in WA) is fascinating.

Compelling listening…

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In some ways (much though I hate to admit it), I suspect some of the things the Howard Government is doing… with work-for-the-dole, and disbanding the Aboriginal & Torres Straight Islander Commission (ATSIC) are moves in the right direction. Much is directed toward the idea of helping people to help themselves, rather than just providing hand-outs and telling them to go away. You get similar talk from Noel Pearson about helping Aboriginal communities.

The Labour party (who seem especially fixated on ideals of helping the underprivileged) really need to listen to this lecture, and learn from it.

You can sell ANYTHING on ebay

A stinker today – 39 degrees outside, and the air-con in our office at work is not working. It was 33 at my desk (and the guys near the windows had 35).

Some colleagues in another part of the company offered to sell us some cool air, but put it up on eBay instead.

You can buy the cool air here

Because that will eventually age-out, here is a screen shot:

The description states that this is “Box of cool air … around 20 degress celcius. box IS NOT included. Pickup only, cash only.”

Somebody even asked: “Hi, would you consider a trade for a jar full of daylight, not working at night or during full eclipses of the sun, but otherwise good condition”!!!!

Full size screen shot:

Read the rest of this entry »

Tour down under – here again

The tour down under is back.

Lots of cyclists riding the roads lately.

No problem with any of that, but gee I’m pissed off when they ride two-abreast and hold up all the cars behind them.

I *know* it’s legal – it just means the law is wrong.

It’s another form of arrogant bullying. There is no need at all for cyclists to ride two (or more) abreast – they do it because they can and to hell with everybody else.

Grrrr!

Lousy Design of Everyday Things

While away on the Christmas holiday we stayed in a house with all the modern appliances.

Everything was expensive imported brands – many European. For politeness the brand name won’t be mentioned here.

Strange thing was that in EVERY case, each of these expensive imported appliances had basic design defects that detracted from their usefulness.

The cheaper locally made appliances seem (based on my limited experience of what I have installed at home) to do the job better.

Examples:

The fridge has a butter / cheese compartment, but you cannot open it properly unless the fridge door is opened to about 110 degrees, otherwise it fouls on the freezer door above. When you have a wall next to the fridge door, you can never open the compartment properly:

The dishwasher has cryptically labelled buttons with no words, and a big knob. You turn the knob to make stuff happen, but it only has numbers on it. What do the numbers mean? The knob can be pressed in, but what does that do? Being there for a week we eventually figured out how to make that dishawsher do something, but we never really knew if it was doing what is supposed to do.

The stove top had a grille with gaps so big it won’t take a coffee pot, and it was impossible to slide a saucepan (even a very big one) from one burner to another because it falls through the gaps:

It’s really sad to pay extra for this imported rubbish.

Thought of the day

Rome did not create a great empire by having meetings…

They did it by killing all those who opposed them.

Cleo & Lois

I had to go into town today, and I got the usual smile as I went past CLEO LANE.

For those interested, Adelaide also has a LOIS LANE.

There is a town planner somewhere with a sense of humour…

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[And for those not in the know, Cleo Laine was a singer very popular in the 1970's and 80's. For those from some other planet, Lois Lane was Supermans girlfriend.

Cleo Lane is off Bartels Road, just before you get to East Terrace.

Lois Lane is off Tynte St (North Adelaide), near LeFevre Tce.]

How neat is this?

A Tiger Lily in our garden:

Organising those pesky digial photos

The number of digital photos we have has grown very quickly since buying the camera, so much so that the management of them on the PC has become a nightmare.

As the number of photos grew, the requirements for the software became apparent. They are:

. Handle a LARGE number of photos (many hundreds);

. Handle those photos taken in high-res mode, so the files are big;

. Always preserve the original file, even when edits are made (it is not acceptable to destroy or mangle the original file so that it cannot be recovered);

. Allow organising and grouping of the photos;

. Allow adding a commentary or caption to each photo;

. Easy backup and archive – preferably to CD or DVD, and preferably allowing a partly full CD / DVD to have the new stuff appended rather than needing to always make a new one;

. Generate slide shows.

The camera came with software (which shall not be named), it seemed pretty good at the time. It does pretty much everything listed above EXCEPT that it destroys the original when an edit is made. It won’t even allow a copy to be taken for editing unless you export and re-import – a very slow, clunky and error-prone process.

After much searching the web and asking about, Duncan pointed me to PICASA, from Google.

It seems to be everything I’m looking for, and FAST besides.

Now, all I need to do is get about 400 photos out of the wierd database / structure organisation used by the other s/w and it will all be loverly.

EDIT: After about 2 hours using PICASA I am about 1/2 way through organising, catalogueing, etc.

It lets you caption each photo – and the caption is stored IN the photo not in some separate database – so the caption goes with the picture forever.

I just cannot believe how good this software is. Even thought there are few minor things that annoy me (the caption editor sucks), in general this is just brilliant.

Calvin & Hobbes

Yay!

Calvin & Hobbes is on-line! Here.

Naylors Canberra

Quite by accident I found “Naylors Canberra” – by Doug (Doug who?)

It is an online novel written in installments (brave man).

I got started an hour or so back and can’t escape… gee this is good (even allowing that it needs a little editing). I’ll get in strife soon for not doing the other things I was supposed to be doing.

Start here for the intro, and page 1.

Hey Doug: When do we get a proper published paper book version so we can sit in the lounge (or in bed) and read it?

More about Doug (whoever you are). Well done!

EDIT: I could not escape until I finished it. Gee this is good – Doug, you have a real talent. I’m eagerly awaiting Naylors Melbourne now.

Worth a look

Take a look here at Troppo Armadillo.

As the Armadillo’s describe it… “Musings on law, politics, economics and life from blogdom’s cross-disciplinary post-moral majority”

Butlers Irrigation – Followup

Got this from my father:

Bill Butler was a teacher at Wellington Road Primary School when I was there between 1943 – 1947. I can’t remember exactly when and I can’t remember what he taught; it was probably a bit of everything as a class teacher.

He had three daughters, the eldest of whom was Pam who was on a trip around Tasmania with me in about or 1956 or 1957 [January]. We later had a reunion at the Butler home in Westbourne Park where I met him again and as I can recall, the firm was called Butler Agencies and handled anything in hardware he could make money on. I seem to recall that the staff was Mr & Mrs Butler. They handled flyscreens and things to make louvre windows fly-proof [the slogan was 'fly free fresh air']. They seemed to be doing pretty well even then [new car and three girls going to private school and a beach house at Aldinga etc].

I found Butler Irrigation many years ago when I was putting in a watering system. I know I went in there one Saturday morning, but it seems as though they have expanded since then. Even then Bill Butler had sold the firm some years before. At that time, the irrigation fittings there were better than anywhere else in Adelaide.

Adelaide is a small town still isn’t it?

Yup! Sure is!

Butlers Irrigation

The other day I needed to buy some replacement pop-up sprinklers.

These were to replace a few that are getting a bit old and tired after 12 years of service. After 12 years, it is also a bit harder to buy identical replacements than it used to be.

A quick ring-around and I found Butlers Irrigation, in Sturt Street, Adelaide.

They had everything I wanted and a LOT more besides. Good and knowledgeable people to deal with, reasonably priced.

The place is like an Aladdin’s cave – I could spend an hour or two wandering around looking at pipes and sprinklers and fittings and pumps… you name it, they seem to have it.

Good thing it was close to closing time… I could do serious damage to the credit card if left alone in there for too long.

Back from hols

Back from the Christmas / New Year holiday.

lots of photos to sort / clean up / post etc. Maybe soon. It will take a little while to get it organised.

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