The library – the most profitable investment in your life!

Libraries are as old as civilization - though the selection of books available at this one might be limited...(seen at Pataya, Turkey)

Libraries are as old as civilization – though the selection of books available at this one might be limited…(seen at Patara, Turkey)

Like conventional families go to the mall shopping to have a good day, at Woodpecker’s we have the habit to visit our local library about once a week.

Boy, this is always good fun and sure for free!

The kids are so keen to go there, it always turns out to be a first class event for them, and an educated one as well! We started the habit about 2 1/2 years ago, when the older boy (he is now 3 1/2 years old) started to consume kids book by the dozen.
Actually these days we source 90% of our media demand from the library, but I am surprised that there are still people who never use it! And I’m in deep regret I didn’t discover it earlier.

At least here in Munich, libraries are spread out all over town, and they have kids corners for all ages, kids film, science books for all ages, board games, movies, music, travel guides, audio books, computer programs, you name it!

You just do a nice excursion there by bike, load in a stack of stuff while the kids happily and with a broad smile screen new books or search for their favorite DVD and you have a good time until your next visit.

A big hit to our Amazon purchases.

Let’s look at an estimate:

Item lend Per visit Per year (30 visits) Cost saved p.a.
Kids books 5 50 (very repetitive) EUR 500
Kids DVDs 3 30 (even more repetitive) EUR 450
Board games 0,2 5 EUR 150
Books for us 3 90 EUR 750
Music CDs 0,5 15 EUR 150
Audio Books 1 30 EUR 450
Movies 1 30 EUR 450
Travel Guides 5 EUR 100
Special Books (Science, Handbooks, coffee-table books 10 EUR 250
Total EUR 3.250
Healthy bike kilometers 6 km 180 km
Cost of 2 library cards EUR -40
Return on Investment 8125% !!

A return on investment of 8125% on our library cards!
Savings of 3.250 EUR per year by an investment of 40 EUR. That is 32.500 EUR savings over 10 years! (Or still ~10.000 EUR, assuming you’d have bought used books/media instead)

That’s what I call a good performance! I’d wish there would be more deals out there like this one.

But I’d guess the library card will stay the single most best investment in your life!

So go for it today!

Of course there are still a lot of occasions where we buy from Amazon. TV Serials e.g., as there is no TV at Woodpeckers. Or special books/movies/software not available at the library. In this cases we mostly order at Amazon UK which is much cheaper than Amazon Germany and you can actually log in there with your German user name!And later we resell the used stuff in Germany.
Quite often, I even made a profit out of movies or books that way!

Cheers,
Woodpecker

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Refurbishments for Free?! Team up with neighbors and Landy…

Flowers at Woodpeckers. Ha! Last year ;) This year is far behind.

Flowers at Woodpeckers.
Ha! Last year ;). This year nature is far behind.

Finally, even at winter struck middle Europe, spring arrived last week. With summerly temperatures and people flocking outside to have fun under the blue skies or do some work in the garden / at the house.

Spring is there, time to share!
And to team up with your neighbors…

Bustling with energy, Woodpecker and family started / accomplished a few projects – as always not without trying to find frugal and efficient solutions, and to improve social interaction ;).

1. Expand the terrace – for free!

The terrace in Woodpecker clan’s house is way to small to cater for our increased family size and increasingly frequent grill events with friends and family.
However, Woodpecker rents out the house and cannot force the landlord to do anything, so this is the deal we struck with the landlord (call him Landy):

He is paying and providing all the necessary material. We do the choice together, but the bill is his. In return, Woodpecker, Family&Friends will do the construction work.
Actually, this is a perfect win-win situation: Landy will get a new terrace relatively cheap while pleasing his renters. Woodpeckers will get a new terrace without any increase in rent, while pleasing Landy.

Did that kind of deal a few times by now, for a new parquet floor, new carpets, and minor improvements. By now Landy outright loves us as “the best renters he ever had” and we are enjoying a quite favourable rental in return. I mean, the guy is as much an economist than me, but then – as most people – he is not without reciprocity.

Woodpecker on top gets some very welcome and nice diversion from his often-good-fun but low-physical-activity office job. Plus improved relationship with a very practical hands-on neighbor who volunteered helping in construction.
This guy in return gets some nice steaks and frequently lends out one of the few electric tools of Woodpecker’s.

2. Refurbish the balcony balustrade – for free!

This was more than necessary, as the balcony really started to look ugly with all the wood starting to rot after years of neglecting. However, no way to force Landy to do anything on his own, as all is still functional.
So we struck the same deal as above.

Tried to do the Tom Sawyer trick with some passing passers-by. Had good laughs with most of them, but unfortunately none volunteered.
However, the kids and me still had fun painting on a bright sunny Saturday. The little boy now can climb the ladder at age 1 ;).

3. Clean the lawn of moss and plant some stuff

Of course we don’t have a scarifier. Didn’t know what the hell this is only 5 years ago! (…a bloody noisy machine ripping out tons of moss from filthy un-british lawns in a huge cloud of dust and pollen)
But guess what? Another neighbor has, along with all kind of spades, picks etc.
Lended all out in return for some eggs they happened to need for pancakes.

4. Received some fire wood for free

While working all day outdoors, our other (elderly) neighbor came around to greet and to get rid of some fire wood he had produced from cutting his fruit trees.
Very welcome, bring it in!
As the guy had nothing else to do, he even sawed all the stuff in handy pieces for us.

Well, actually he owed Woodpecker, as I repaired his WWI style fuse system some months ago – actually after two hours searching for the f**** fuse box. This guy had simply had glued a wallpaper over it twenty years ago!!! Good old fuses seem to last longer than today…;) ūüėČ

5. Got invited to a cycling tour by the guy who gave me the scarifier

Fun thing is, people quite enjoy helping others! In today’s world too few people seem to ask, so go ahead and give them the pleasure.

6. Had a grill party to celebrate at Woodpeckers

Live long and prosper!

Again with a family that just moved in the neighbourhood – with kids matching the age of the Woodpecker boys. Walked up the other day, said Hello and invited them. Sure they were happy to come around. Zero petrol wasted, only quite some beers and steaks.

All in all a funny weekend.

Practically zero costs, but a lot of things achieved and a lot of sun soaked up!

And this is how the world goes around:
Talk to people, team up, do things without calculating your gains and costs too strictly, and all will benefit and prosper!

Cheers and enjoy your day,

Woodpecker

Money, Freedom, Happiness – 1st Anniversary Post

Sagrade Familia. A must see in Barcelona, and one of the most facinating buildings I have ever see. Under construction, estimated building time: 144 years.

Sagrade Familia. A must see in Barcelona, and one of the most fascinating buildings I have ever seen. Under construction, estimated building time: 144 years.

One Year of Blogging!

Hurray!

As stated in the opening posts, Woodpecker started the journey on happiness more than 15 years ago.
However, the journey was very unstructured and into the blue until one year ago, when I hit the philosophical concept of downshifting.

So let’s see what the first year of shifting the journey to a more conscious level brought:

Financial Progress

Very satisfying. See here.

Albeit a new family member was welcomed to the Woodpecker clan (family size +33% ūüėČ ), total spending were down -15% in 2012. That was way beyond the goal of -5%.

A very good result that cannot be beaten in 2013 as many savings potentials are now realized already.
Given also significantly higher income this year (Woodpecker unfortunately back to full-time all year employment – hopefully not for long! Mrs. Wp employed 40% this year instead of zero last year), we will release the brake a bit and allow for +15% spending in 2013. Chances are we’ll stay below again as we now are so used to spending efficiently.

Savings rate was about 24% last year. Goal for 2013: Savings rate should stay the same.

Investment Incomes were good. Although not fully satisfying given the huge rise in stock markets. Slightly underperformed there, whereas goal is to outperform the DAX by 5% after taxes and costs.

Philosophy of Money and Freedom

The culumns resemble trees.

The columns resemble trees.

Financials are one thing, and I did put very much focus on those in my first months of “active downshifting”, but then they are not all. Obvious? Well, anyway, to take that really to heart was one of Woodpeckers biggest mental progresses last year:

At one point Mrs. Woodpecker very correctly remembered me that by thinking about saving and maximizing efficiency all the time, I am actually doing what one should not do, because it makes unhappy: Thinking about money all the time. (There is ample prove that people who think about money too much are less happy than their peers)

Very helpful comment, now I try to take a more playful and relaxed standpoint, somewhere along this line:

Try always to spend as efficiency and save where you can, care thoughtfully for your investments, but see it as game rather than a question of life and death.

You lost money stupidly? Did make wrong decisions? Fate, tax or something else were against you?
Well, no need to anger, bygones are bygones, learn and look forward.And don’t count the nickles every minute, as this will make you a grumpy old Scrooge no-one wants to be around with.

Remember:
Freedom means being slave to no-one and to nothing.
So no matter how important financial solidity is, you must not be a slave to your money as well as to anyone else.
Necessary to have you financials in order yes, but in the end life is about living not accumulating money. That’s important, I’d guess.

Excercise on getting relaxed about money

If you are not there yet, try this exercise:

While you are sitting idly at your desk at work or at home or in the tube, imagine once every day, what would happen if you’d lose all your money tomorrow.
If you’re hardcore, add the imagination of loosing your job as well.
Imagine as lively as possible. What would it feel like? What would you do? How would you get up on your feet again?

You’ll see, after a few rounds the fear will slowly melt away.
After 20 rounds it will probably be gone. Not that you will wish this to happen, but you’ll have found ways in your imagination how to carry on and this means you are even more free from slavery to external circumstances.

(I stole this method from conflict training, where you image again and again confrontational conversations in detail until you lose the tension and are able to do them in a more relaxed way)

Happiness

Well, some happiness moments were listed here.
As happiness cannot be planned, no goal on that.
Happiness simply kicks in without warning if you set the conditions right.

Stress

Free time and control over it made a huge progress.

I’d say stress was reduced significantly. I try to follow my own rhythm as far as possible. Improved in not letting others pushing me and saying “No” or “It will take some time”. Took parental leave, switched from over-time pay-out to additional free days. Stayed at home when feeling ill.
(Btw: My “Performance Review” result at work for 2012 was exactly in line with the years before, so no harm done! Interesting, isn’t it?)

You can do the same once you understood that you have much more control about stress (e.g. at work) than you might think.

Tough job for the stone masons. All this is chipped massive stone not some cheap concrete.

Tough job for the stone masons. All this is chipped massive stone not some cheap concrete.

As we are often slaves to our money, we are also often slaves to our own high expectations.
Be a bit more relaxed about what you expect from others and from yourself, and you’ll see it works. Colleagues and bosses will – after a moment of shock – adapt when you leave much earlier from office, when you stay away if you are ill, when you just leave your blackberry at the office etc. If someone starts mocking I tell them frankly about downshifting philosophy.

By now I think many people are just too frightened (of loosing their job or miss a promotion or someones disapproval) and lack courage to change things for the better.

And then they complain about circumstances. Well, sure, often circumstances are bad, but still, most people underestimate their power and forget to exercise the control they have themselves. Don’t be one of these drones!

Goal for 2013:
Banish the alarm clock as far as possible. Listen to the body clock. Try some weeks (probably holidays or my colleagues will get crazy ūüôā ) living without any clock and timings at all.

Holidays

Unbeatable in 2012 due to parental leave.

Goal for 2013:
As much as possible!
Maybe more weekend short trips to surrounding cities. Boss, I need more time off!

Activities

Quite a lot in 2012! Although a bit hampered by the baby and lack of sleep etc. Nature sometimes is cruel, but it gets better every week.

Goal for 2013:
Join Sailing Club.
Do much more mountain activities, e.g. start mountain biking again.
General more frequent sports activities, running in the morning or biking to work.

Well, enough for now. It’s saturday and time for some chilling!

Woodpecker

Some Guidelines to successful Investing

Investments returns can help building the bridge to better downshifting. (Galata bridge, Istanbul)

Investment returns can help building the bridge to better downshifting. (Galata bridge, Istanbul)

Obviously, downshifting is much easier if you have a solid financial background and if your savings are working for you in a way as efficient as possible.

I am frequently asked what my investment strategy is, so I will put together some general ideas in this post. I will however not make specific recommendations on markets or products, as in the end everybody is responsible to make their own decisions and bear the consequences.

Disclaimer:
I am not a financial adviser. The ideas presented are my private opinion and no general recommendation. Everyone has to do his/her own research, make his/her own decision and bear the consequences.

Let me start with some first and very important advise:

1) There is no such thing as a golden bullet to become rich in an easy and risk free way by investing in a “magic” product

Sounds obvious? Well, maybe. But after investing in financial markets for over 15 years now, I learned that many people basically are still looking for this magic bullet, and most investors still think it is out there.
Whenever somebody says, “the market went so deep, it cannot go deeper” or “Real estate is a save play, there will always be demand” or “gold was important throughout human history, so buying it is a safe bet”, then actually he is advertising the magic bullet.
Do not believe talks like that. Investment is hard work if you want to beat the market.

In economics there is a saying there is no such thing as a free lunch. That means when something sounds very attractive, there WILL be a risk or hidden caveat attached to it.

A bank pays high interest on your savings? Well, maybe they are in risk of getting insolvent in which case much of your money will be lost.

A stock pays a great dividend? Well maybe they are paying it from their substance, thus neglecting growth or sustainability and despite the high dividend, valuation of that stock will go down, causing losses to you.

I will admit that actually there are a few and quite limited “free lunches” out there from time to time, but it takes a lot of time and knowledge to find those – you’ll not find them in a financial newspaper advertisements. And do not forget that other clever people are out there as well. Thus my second advise:

2) Be humble. Always assume that there is a lot of players out there that are smarter than you.

Whenever you found a great investment, be sceptical. And scrutinize if maybe this is a trap layed out for you by a really smart professional. Always diversify and never bet with too high stakes or with leverage or lended money.

3) Be very sensitive about costs

This is important! Most investors seem to neglect cost when doing their decisions. And I did as well when I started in the stock market.

However, one example shows how important costs are:

Let’s assume you invest 10.000 EUR in an ETF, and returns will be 6% per year.
Now we look at two alternatives, the first has a management cost of 2% per year, the second is a passive product with costs of 0,5% per year.

Guess what the total return is after 20 years?

  Inv. A Inv. B
Capital at Start 10.000 10.000
Return (p.a.) 6% 6%
Cost (p.a.) 2% 0,5%
Capital after 20yrs 21.911 29.177
Return (total in EUR) 11.911 19.177
Return (total in %) 119% 191%
Return (last year in EUR) 876 EUR 1604 EUR

For the first ETF, it is a surplus of 11.911 EUR. Very nice, 119% over 20 years.

But for the second ETF however, it is 19.177 EUR or 191% over 20 years!

That means, the difference in costs almost doubled your future income from that investment in the second case.

And look at the income stream that will be generated after 20 yrs from the both alternatives: The annual income of the low-cost alternative will be almost double the income of the high-cost alternative.

So, always bear costs in mind and ask yourself if high costs are necessary and justified.

4) Don’t overestimate tax-optimization

If you like it or not, you will have to pay taxes on most investment returns. Obviously, everybody would like to avoid that, but be careful: Tax-avoiding strategies often lead to ill decisions. Financial industries are happy to market products that are “tax-efficient” as many customers seem to become blind to the quality of the product as soon as they hear the word “tax saving”. This was shown in many economic studies.

5) Check the performance of your investments not too frequently

This is about happiness.

Checking too often will make you compare to others (or the market) all the time. Problem is, that comparing to others as well as thinking too much about money are both proven to have a negative effect on happiness. And it leads to hectic decisions, at least in my experience. So I tend to thoroughly choose a strategy, buy stocks, and….wait.
Especially in the first months after a purchase you might not want to look at your stocks at all. If they are flourishing you might get too overconfident, if they are diving you might be tempted to revise your strategy and sell them in an affect.

6) You might prefer real investments (“tangible assets”) over nominal investments.

A nominal investment would be a savings account, or a bond. Both entitles you to a payment by a second party (the bank or the bond issuer) whereas with a “real” investment you actually own something physical, like a part of a company, a patch of land, a piece of gold, you name it.
Real investments are more immune to inflation, less prone to haircuts or insolvency or financial repressions. See this post.

However, price still matters. Never buy an asset blindly just because you are afraid of loosing your cash in one of the many crisis.

7) Buy anti-cyclical

You think modern markets are developed, stable and rational? Far from stupid emotions and stupid behavior?
Well, they are not. I’d even say that modern markets are more prone to irrational herding behavior than 20 years ago, due to the high pace information is traveling with and action can be taken.
Thus markets frequently over- and under-shoot their fair value in highly emotional rushes.
Train yourself to sit on the other side as often as possible.
Everybody is buying real-estate/tech-stocks/old-timers?! Be careful.
Everybody says real estate/stocks/a certain country is doomed!? Consider buying. Don’t buy blindly though, but give it a thought if the market might have overreacted in that particular situation, giving you a chance for a bargain.

However, with anticyclical investments, you need patience and some stamina to withstand initial losses. Judge carefully how much downside you are willing to take (in most cases losses hurt more in reality than you might think beforehand).

8) Have fun in what you are doing

I think this is very important. You hate reading company earnings reports, plugging through balance-sheets and compare different valuation measures? Then better turn away from stock picking as the public information will simply not be sufficient to make a superior pick. I’d stay away from stock picking but rather go for passive (costs!) ETFs (fully stock backed ETFs are real values; note that certificates or options are not!).

You have no idea of different housing qualities, standards, price comparison etc. and have no fun in reading into these things? Then it might be difficult to make a bargain at the real estate market…

9) Learn about the psychology of investment

You think you have yourself fully under control and are taking you decisions in a rational way?
Well, most likely you will not. On top you might not even know where your emotions are steering your decisions.
So it’s a good start to understand common psychological investment traps as outlined e.g. in the two links below:

Presentation on Behavioral Finance

Overview of common behavioral investor mistakes

10) Money is not everything

In any case you have to accept volatility as a part of the game. It is a long and tough way to learn to really cope with e.g. 30% of your wealth being destroyed in a market crash. Be prepared that you will suffer on this way.

But always remember: Life is a game, and so is investing. It is only money!

…and as a good downshifter, you never made your happiness depend solely on money, and you know that money is a means only and never the goal.

OK, so that were general advises, but what now about Woodpeckers strategy?

Well, as said, this is my personal decision, so I do NOT say it fits everybody else’s risk appetite, financial profile etc.For the reasons stated above, Woodpecker strictly sticks to investing in “tangible assets”. I am however not good at evaluating real estate. Plus it is illiquid and difficult to diversify. Thus Woodpecker is invested almost 100% in stocks, and always was. For me it is great to own parts of companies that I belief in, plus the stock market grants decent returns in the long run, about 7% p.a. is the historical mean (Siegel’s constant). And – this is important – I find it quite some fun digging for undervalued stocks and markets.

I do stock picking and am mostly invested in German small caps (companies I know or can understand, plus often so small that they are not covered by institutional investors), a couple of stocks of southern Europe (I think there are some bargains here these days – however be careful, this is a tough and partly dangerous market) and some stocks in UK and eastern Europe. I avoid US stocks, as they are said to be slightly overpriced my many common metrics plus they add currency risk to my portfolio that I don’t like. Sometimes I do buy ETFs or certificates (careful! certificates include counter-party risk) of specific foreign markets where I see potential but have no means to pick individual stocks.

Right.

I’ll say it a third time: Don’t follow anyone blindly (including me), but find your own strategy! But equally important: Start finding your strategy now!

Investment can bring a real boost to your downshifting progress, even if it is humble and careful and passive …

Cheers,

Woodpecker

ps. Excellent Investment Blog and with very good blog-roll: http://valueandopportunity.com/