Wage Slavery Emancipation

Slave Venture Smith buys his freedom
If a slave in the 1700 can do it, we can do it as well

Slavery in the 1700s

During the late 1700s and early 1800s slaves were allowed to buy their own freedom. They earned money by doing work in excess of what was expected of them. Sometimes they worked for other masters on weekends or engaged in entrepreneurial activities such as fishing or farming.

When those slaves earned extra money, they could have easily spent it buying stuff, but they didn’t. They had a higher goal in mind. They wanted to buy their own freedom.

Here is the story of Venture Smith, a slave who at the age of 31 had saved enough money to buy his own freedom, and 10 years later he had saved enough to buy the freedom of his wife, his son and his two daughters.

Although self-purchase was rare, an 1839 census reveals that 42% of blacks in Cincinnati and Ohio had purchased their own freedom.

Wage Slavery
Alain Guillot and friends at the park
Against Wage Slavery. One of my favorite activities is to spend time at the park with friends. It’s fee and we have lots of fun

It is my belief that today most people live a similar slavery, a wage slavery. Sure, we don’t get beaten by our masters and we don’t suffer physical violence (but we can be put in jail by the tax authorities) but the feeling of slavery is way too similar.

Wage Slavery refers to the circumstances in which a person’s livelihood depends 100% on his salary.

As opposed to the 1700s slaves who were forced into slavery, today’s wage slaves fall into slavery by psychological manipulation. Today’s wage slaves are persuaded to spend money on frivolous things, to buy clothes every season, to buy gadgets every year, to eat in restaurants they can’t afford, to use brand names as a way to signal how unique they are, to buy new cars when an old one would do fine, to live in housing they can’t afford. Today’s slavery is self inflicted. We spend every dollar we earn and then borrow more, we belong to the credit card companies and to the government.

Save to buy our freedom

We are constantly bombarded with all kinds of advertising. We have to buy the new thing to feel unique and special, we deserve it because we are different. But if we take a moment to reflect, we could easily discover that we are being played by corporations and by our governments.

The way to get out of wage slavery is to consume less and invest the savings in a tax efficient manner. We can reduce the power of our two masters, the advertising machine and the government, by saving and investing.

When we reduce our spending and invest our savings, we shouldn’t  think of it as deprivation, we should think of it as a method to buy our own freedom.

When we invest our money, our money works for us. Therefore we are not 100% dependent on our salary. At the same time, we can invest it in a way that allows us to pay less taxes.

If slaves were able to buy their own freedom at the end of the 1700s, we can certainly buy our own freedom today.

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Profiting from the Brexit panic selling

Stock market falls after the Brexit.
After the Brexit, the market tumbled. I was greedy when others were fearful

It’s all over the news. England is separating from the European Union.

The English got tired of having their lives dictated from Brussels. They found the excessive control asphyxiating. They decided to give up some of the economic benefit of being part of the European Union in exchange for gaining back some of their sovereignty.

With friends at a picnic table at the park
Enjoying time with friends.

On Thursday June 23rd, the market rallied over expectations that there would not be a Brexit, but on Friday we woke up to a different reality. Britain decided to separate from the European Union. There was panic selling. There was blood in the streets.

Warren Buffett often says: “Be fearful when others are greedy and be greedy when others are fearful.”

Be fearful when others are greedy and be greedy when others are fearful.

It seems to me that others were fearful. There was panic selling all over the world. The French index went down 8.04%. The Euro SToxx 50 went down 8.62.

What was my reaction?

I bought the Developed Europe All Cap Index ETF sold by Vanguard (VE.TO). This index focuses on companies located in developed European markets. VE.TO dropped 8.23%.

The rationale:

This is not the end of the world, this is not a terrorist act, nor a war, nor a major natural disaster which could damage the productivity of the companies in the index. This was a democratic decision taken by a developed nation in a peaceful fashion.

All the companies included in the index will continue doing business through the weekend, next week, next month and next year. Commerce will continue to happen within Europe and with the rest of the world.

It is my belief that over the weekend traders will have the time to analyze the situation and realize that things are not as bad as they believed it to be. At that moment the European market will rebound and I will get out of my position with a small profit.

Anytime a person buys a position, he/she does so with the knowledge that the price could go down. I might not make my profit right away. It could take me a week, a month, or even a year. That’s ok. The alternative is to have my money in the bank earning 0%. I prefer to take a risk than to let inflation erode my money.

I bought VE, an index composed of 1,220 European companies. It represents the whole European economy. The index might go down, but it will not go down to 0$.

I bought 400 shares of VE at $23.16. I will write another post when I get out of my position.

Update: Five days later I sold at $23.70. Only a 2% gain, but it was fun.

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Interview with Elijah Baker. I don’t believe money brings happiness

Having purpose in life brings happiness

This is the second in a series of 10 interviews which I am calling Canadian Hustler.

We have won the geographic lottery. We live in a rich country, full of opportunities and numerous safety nets to catch us if we fall through the cracks. We can afford to take risks, we can dare to do something that we are passionate about. We don’t have to restrict ourselves to so-called “job security.”

This is an interview with Elijah Baker, a person who I met at my Toastmasters Club. Through his speeches Elijah has shared snippets of his life, but through his actions  he tells us about his creativity, his optimism, his humility and his ability to see the best of life in every circumstance.

Elijah has opted out of the 9 to 5 lifestyle. This is how he lives his life:

Elijah Baker

Alain: How do you make a living?

Elijah: I have always been able to make a living doing things which interest me. I studied communications and music at university and right now I give music lessons, plus I do independent video contracts. (This is Elijah’s website Inspiration Media).

Alain: Have you always been a hustler?

Elijah: When I was in my 20s, I worked for about 4 months in a 9 to 5 job and that was enough.

Alain: How were you able to escape from the 9 to 5 mindset?

Elijah: My parents were my role models, they had unconventional ways of earning a living.

My  mother always worked part time. She only worked 2 days a week and the rest of the week she spent living her life gardening and doing  other things.

My father works in the film industry as a freelancer.

The idea of doing the same thing, every day, from 9 to 5, scares me. I would worry that it wouldn’t be fulfilling for me and I would not feel passionate about it. I gave myself permission to live outside the box.

I gave myself permission to live outside the box.

Alain: Don’t you feel afraid? Not having a regular paycheck?

Elijah: Not really, hahaha.

We live in a society with lots of safety nets, but I feel if I ever fell, my family would be there to catch me. I’m really lucky to have a great family. I’ve never had to call upon it.

What is the worse that could happen? That I get a crappy job? Getting a crappy job would not be the end of the world and I can always find a job.

Alain: What advice would you give to someone who would like to get out of the 9 to 5 but don’t have the courage?

Elijah: We only have one life to live. I would encourage anyone not to suffer for too long. If they don’t like their job, I would encourage them to find something that they feel more passionate about.

Alain: How do you find business?

Elijah: Word of mouth, networking at events, being present in different activities, always speaking about what I do, and Facebook events.

Alain: How do you stay motivated?

Elijah: I always try to do my best. My work represents me. I put myself into my work and I feel good when I produce something of quality.

Alain: How much do you earn?

Elijah: Lately I have a lot of work, so I am doing fine, but I don’t know how much I earn. For me, as long as I have enough to pay my bills, I’m happy.

As long as I have enough to pay my bills, I’m happy.

Alain: How do you deal with the stress when you are not earning enough?

Elijah: Lack of money is not the most stressful thing. We have safety nets and I don’t believe that money brings happiness. I believe that having a purpose and engagement in what you’re doing brings happiness.

I don’t believe that money brings happiness. I believe that having a purpose and engagement in what you’re doing brings happiness.

Alain: Which books can you recommend to the audience?

Elijah: Creating a Life Worth Living by Carol Lloyd. She asks, what kind of person you are, what environment you want to work in. What is your creativity style? And then she encourages us to create a life for ourselves worth living.

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Alain and friends in a dance floor

An emergency fund is not that important

Do you need an emergency fund?

Most personal finance books promote the idea of creating an emergency fund as a fundamental step in personal finance. ( See personal finance guru Dave Ramsey and Senator Elizabeth Warren.)

Why? Because if you have an emergency, you can use that money instead of using your credit cards or dipping into your savings account.

The recommended amount for an emergency fund is the equivalent of 3 to 6 months of your regular monthly expenses.

For example, a person with a $40,000 salary will have an income of about $3,350.

A three month emergency fund would be about $10,000

A six month emergency fund would be about $20,000

That’s a lot of money.

The typical textbook recommendation is to put this emergency fund into a zero risk, liquid account, like a savings account. Usually these kinds of accounts earn zero interest.

Your credit card is your emergency

I just read an article from the blog NerdWallet  which reported the average amount of debt carried by a typical person:

Credit Card:        $15,762
Mortgage:        $168,614
Auto Loan        $27,141
Student Loan        $48,172

In a world where credit card interest rates fluctuate between 18% and 22%, it makes no sense to have $10,000 sitting in a bank account, earning 0% while holding a credit card debt of $15,762 at 18%-22% interest rate.

Paying down your credit card debt should be your highest financial priority. There should be no savings for retirement, no savings to buy a house, no nothing, until your credit cards are paid. Your credit card debt is your emergency.

You should also pay off other debts, such as your mortgage debt ( about 4%), auto loan (about 6% ), and student debt ( about 6% ). Why forgo reducing these debts in order to have money sitting in a checking account earning 0%? This makes no sense.

Invest your emergency fund

Let’s suppose you have paid all your debts. Would it be a good idea to have an emergency fund now?


Either the Canadian index or the US index has an average return of 8% per year. Investing money at 8% sounds a lot  better than letting your money sit in a bank account earning 0%.

But what if you have an emergency?

The usual examples used by experts for an emergency fund are:

  1. Your car breaks down, or
  2. You get sick.

Car repairs don’t cost $10,000. If yours do, you are driving the wrong car and you have a consumption problem. Your problem is not lack of an emergency fund.

Most people get sick for about a week, this is not an emergency. If you have a more serious illness, $10,000 will not solve your problem. Your problem is lack of proper insurance.

Emergencies should be rare events which happen every 5 years or so. If you have an emergency every year, then it is not an emergency, it is a recurring expense.

What if you have a more serious emergency?

Credit card: Get your credit card, pay for your emergency, and then pay for your credit card debt within 30 days with alternative forms of financing..

Line of credit: The interest on a line of credit (right now) is about 5%-6%. It is better to have this debt at a low interest rate than to use money in your investment account which could be earning about 8%.

Your investment account: A final alternative is to take money out of your investment account. Assuming that a real emergency happens every 5 years, your investment account had 5 years to grow at an average 8% return for 5 years. Assuming an scenario where the market drops 20% right before you need your money, you are still better off than leaving your money at a savings account earning 0%.

How do I deal with emergencies?

I don’t recall having an emergency during the past 18 years. The biggest unexpected expenses I’ve had are parking tickets.

However, I do keep a checking account with a balance which fluctuates between $5K and $10k. If it has less than $5k, I panic and find ways to increase it. If it has more than $10k, then I send more money to my investment account.

How do you deal with emergencies?

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Interview with Raja Chemani about entrepreneurship and self-reliance

Raja enjoying his free time

Canadian Hustler

This is the first in a series of 10 interviews which I am calling Canadian Hustler.

Since our birth, we are indoctrinated to believe that the 9 to 5 lifestyle is the only option to make a living. This indoctrination is so deep in our subconscious that when we don’t get a 9 to 5 job we feel destroyed physically, emotionally, and psychologically.

Having a drink. Cheryl, Raja, and Alain

Our lack of creativity, self-esteem and self-reliance makes us believe that if no one hands us a job we have no way of making a living. For this reason, we are always searching for approval, for diplomas, for certificates and many other forms of endorsements from the permission-givers.

People fight and beg for salary increases or government support because they don’t realize that they can take matters into their own hands. They don’t realize they can create their own salaries and be masters of their own lives.

With the intention of showing that there is an alternative to the 9 to 5 indoctrination, I have decided to interview 10 people who have taken control of their own lives, 10 people who don’t care about minimum wage nor government social programs because they have created their own jobs.

Raja Chemali

Raja was born in Lebanon. He came to Canada in 2007 and went to McGill University to earn a master’s in biomedical engineering.

As soon as Raja started working in his field he found that working in a small lab was tedious and stressful.

In a search for an alternative way of living, he opened an event production company where he invited guest speakers to share their knowledge. The business model consisted on charging people for the privilege of listening to the speakers. Due to the extraneous time and emotional demands, after some time, Raja gave up this business.

While developing the event production company, Raja was working as an independent contractor, knocking on doors, finding contracts for a landscaping company and keeping a 30% cut for his efforts.

The event production company was struggling and Raja needed more money to keep it going, so he decided to continue knocking on doors, but instead of giving the jobs to the landscaping company, he decided to do the job himself. This is how Raja started his present business Sparkle Window, a window cleaning company. Raja created his company in only two weeks and earned a few thousand dollars the first week.


Alain: Raja, How come your instinct pulled you towards creating  your own business, instead of looking for a regular 9 to 5 job?

Raja: I didn’t want to have a 9 to 5 job, that is not my type.

A 9 to 5 is not for human beings, we are not machines that can be programmed to work a certain amount of hours. Sometimes we can get the job done in one hour, sometimes we need 12 hours.

We are organic beings, our lives should not be framed into 9 to 5 blocks.

A 9 to 5 job kills our creativity, it kills the spontaneity of doing things we want to do when we want to do it.

We are the smartest creatures on earth, we should be able to find other ways of making a living other than the typical 9 to 5 system.

Many people don’t enjoy the 9 to 5 schedule, they do it because they feel trapped. They don’t know any other way.

Alain: Many people go to fancy universities to study 4 to 8 years to earn a degree which will help them make a living. And here you are, doing manual labor in a job that only took you 2 weeks to create and you are earning thousands of dollars. How do you feel about that?

Raja: Washing windows doesn’t identify me, I am a lot more than a window washer, I am a human being. My window washing business provides me with the money I need to live and enjoy life on my own terms. Our jobs should not determine who we are as individuals.

Alain: How do you find business?

Raja: I do some Kijiji ads, I keep my website up to date, but mostly I knock on a lot of doors to offer my services.

At the beginning, I wasn’t used to rejections, but then I accepted it as part of the business. Knocking on doors is like a muscle, the more I use it the stronger it gets.

Alain: How do you keep motivated?

Raja: Sometimes it’s difficult. I do it by switching off the creative and intelligent side of my brain and switching on the stupidity mode. I become an automaton.

I also keep myself motivated by thinking about upcoming projects or goals that I want to accomplish and how I am going to use the money to fulfill those goals.

Alain: How much do you make?

Raja: It depends on how much energy I put into it, on how many doors I knock on doors, but when I push myself, I can make up to $1,000 per day.

Alain: Can anyone create their own business or does this require a special mindset?

Raja: The system is designed to take all the creativity out of us and it doesn’t allow us to become human beings. We have the potential, creativity and intelligence to do anything we want but we are taught to obey, we are taught to take orders.

Everybody is an entrepreneur. Children are the biggest entrepreneurs, they believe anything is possible but the system robs them of that belief.

Self-doubt is the biggest barrier to entrepreneurship.

Alain: Which books do you recommend to your friends?


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Hanging out with friends

Net worth Statement June 1st, 2016. $150,530

I have arrived!!!

I have reached that critical moment when my passive income is bigger than my monthly expenses. My monthly expenses are about $1,500 per month, and my monthly income from real estate is about $1,500 per month.

True, I don’t live a life of luxury, in fact I take pride in my frugality. I might not have many physical possessions nor status symbols, but I have plenty of time to relax and live a stress free life. And isn’t time a luxury? Time to hang out in the park with friends and time to do nothing. In that sense, I am living an extremely luxurious life.

Also, my income is not 100% passive. I do have the responsibilities of owning real estate, of finding tenants, of making repairs, of doing the bookkeeping and doing all the little things which are necessary to run my business smoothly.

In addition to covering my expenses, my net worth increases about $1,000 per month. This happens because every time I pay the mortgage I owe less to the bank. This accounts for about $500 per month. And if my projection of a 6% increase in my stock market holdings comes true, my portfolio will increase in value about $500 per month.

What’s next?

I have always loved the idea of fluidity. Of not being attached to a particular place. That’s why I don’t like to have material things. I find them heavy for the mind and the spirit.

Eventually I would like to pay all my personal debts, They are a big psychological burden. I owe $104,717 to my friends and family. And I would like to sell all my real estate holdings. The only possession I want to have is  my broker’s account, my phone and my laptop. I would love it if the day I die, the executor of my estate would only have one job to do: to close my broker account and pay my utility bills.

I would love it if the day I die, the executor of my estate would only have one job to do: to close my broker account and pay my utility bills.

Projects coming up

I want to learn more about personal finance and share my knowledge through my blog, through my You Tube channel, though public speaking and through a future podcast. To that end, I continue educating myself, I continue participating in toastmasters meetings ( I will be the next president of our club next month), and I continue writing in this blog.

I would love to become a leader of a community of people who want to improve their financial lives. I want to help people protect themselves against the manipulation of advertisers, and I want to help people realize that there are better opportunities than working for minimum wage.

So here it goes. An overview of my financial affairs

  • Cash is increasing. I want have enough cash to take a vacation during the winter.
  • My car continues losing value.
  • Stocks are happily going up.
  • The mortgages continue getting paid
  • And due to interest expenses, my debt continues to increase as well.

Here is a breakdown of my net worth:

Date Cash Car Stocks R. estate Debt Total
June 1st 3,350 1,500 95,505 154,892 104,717 150,530
May 1st 3,249 1,750 95,029 153,408 101,808 151,628

Goals for June

To increase my net worth to $151,000. This goal should be attainable, but a lot depends on the fluctuations of the stock market.

My projection is that my portfolio will increase at the rate of 6% per year. This will be the equivalent of $5700/ year or $475/ month.

As for the real estate part, if my mortgage gets paid every month, my debt is reduced and my equity increases by about $500 per month.

Long term goals

As soon as stock portfolio reaches $100,000 I should concentrate on paying down my debt. I feel happy with a $100,000 portfolio. From this moment on, the wise thing will be to reduce leverage and go into a more secure situation.

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Book review: The Millionaire Next Door by Dr. Thomas J. Stanley

Book cover. The Millionaire Next DoorBooks at great bargain

I bought this book at a second hand store for only $2. The regular price was $10.99. That’s an 80% discount for a book which is just as valuable today as when it was written in 1996. One of the millionaire’s habits is to constantly be on the lookout for good value.

The irony of Dr. Stanley’s death

Unfortunately Dr. Thomas J. Stanley (1943-2015) left us last year after a fatal car accident. He was a fantastic writer of business books. He wrote many New York Times’ best sellers including The Millionaire Next Door and The Millionaire Mind. The ironic thing about his death is that after a lifetime of pontificating abstinence and frugality, he died while driving his brand new, luxurious Corvette.

Having a beer with a few friends
Having a beer with a few friends

Are you a PAW or a UAW?

Dr. Stanley divides people in two categories: Prodigious Accumulators of Wealth (PAW) and Under Accumulators of Wealth (UAW). He creates this division by using a formula. He multiplies the person’s age, times their annual income, times 10%. If your net worth is above that number, you are a PAW. If your net worth is below that number, you are a UAW.

Let’s experiment, let’s see if I am a PAW or a UAW.

I’m 49 years old.
My income is about $18,000 per year.

49 old X $18,000 X 0.10 = $88,200

My net worth is about $150,000, so according to this formula, I am a Prodigious Accumulator of Wealth (PAW.) Yeeeaaahhh.

Try it! Are you a PAW or UAW?

The book goes on to describe the habits of millionaires and of people with high incomes who are not millionaires.

Dr. Stanley doesn’t tell us exactly the sample size, nor how he managed to have so much face time to interview all the subjects of his study.

I really enjoyed the book and I think everyone who wishes to be a millionaire should read it. It shares many of the principles and ideas that I am implementing to become a millionaire.

At the same time, I think that the book is highly deceiving favoring the romantic idea of a person who starts from a humble background and who through decades of self sacrifice, deprivation and hard work, becomes a millionaire.

Almost all the subjects covered in the book were self employed, white male, blue collar workers. In his samples, there were no females, no movie actors, no sport celebrities, no CEOs from big companies, no rich traders from Wall Street, no programmers from Silicon Valley or the equivalent from that time. Where were all those millionaires? They were nowhere because they don’t fit the ideal character which Mr. Stanley portrays in his book. Although I loved the book, it’s credibility is highly questionable.

Although I don’t believe the research, I believe that the lessons shared are of great value to anyone who wants to increase their wealth. Here are some of those lessons:

Spend less than you earn

According to the book, all the millionaires had frugal wives and they owe their wealth, in part, to the wife’s ability to cut coupons.

I am a deep believer in the “spend less than you earn” philosophy, but I think he could have found better examples than frugal wives.

Avoid buying status objects or leading a status lifestyle

There is a lot to say about this subject and there are many anecdotes to support it, but it boils down to spending less than you earn.

Willing to take a risk

Since most of the millionaires were business owners, they all took the risk of starting their own businesses. It’s hare to become rich when you depend on a salary.

Inter generational lessons

Dr. Stanley claims that sons of high consumers become high consumers and sons of frugal people become frugal. In short, your destiny is predetermined by the habits of your household. It is ironic that most of these millionaires were self-made millionaires from humble families. Yes, your family habits and background can influence your future, but all of the alleged millionaires overcame those odds.


Although the book is portrayed as  serious research, I see it more as a depiction of the fictional character that Dr. Stanley had of the ideal millionaire. All the millionaires of the book became millionaires for the sake of becoming millionaires. They deprived themselves from their own money during their whole life.

Here’s the story of Mr. Ronald Read a Vermont gas station attendant and janitor, who had a portfolio of $8 million dollars by the time he died at 92. He accumulated that much wealth by saving, investing wisely, and being frugal. Mr. Ronald Read never enjoyed any of his own money. This is The Millionaire Next Door.

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Dragon boat with friends

Save by taking money off the top

Dragon boat with friends
Dragon Boat with friends

Money can’t buy you happiness but it can eliminate a lot of unhappiness

Most of us have dreams and ambitions. Realizing those dreams and ambitions could be so much easier if we have some financial comfort. For example, if you want to spend a vacation in the Caribbean, you need money. If you want to help less privileged people, you need money. Money is the medium of exchange which can help you realize your dreams and ambitions. Money does not guarantee happiness but it can eliminate a lot of unhappiness. It’s a great relief when you don’t have to worry about money for essential needs such as food, shelter and medicine.

How do we make sure we have enough money to cover our essential needs and to achieve financial security?

It’s my belief that anyone in North America (and in most industrialized countries) has an opportunity to make money. Since the arrival of the sharing economy, anyone with an extra room can create extra income ( affiliate link ) and anyone who knows how to drive can start earning some money with Uber ( affiliate link). For the first time in North American history, women have an equal opportunity to earn money as drivers (See this article by the National Post). And there are so many other ways in which a person can start earning money almost immediately. You can earn money by walking dogs. You can earn money by putting together Ikea furniture. The idea is to start earning money today while you build a medium-term and a long-term plan to continue earning money in the future.

Money is a tool with great leverage capabilities. For example, if you want to buy a $200,000 house and you have good credit, you can give a down payment of only 5% ($10,000). If your house goes up in value 5% in two years ($210,000), you would have made 100% return on your investment.

But, in order to acquire this fantastic tool that you can use as leverage to realize some of your goals, you need to start saving today.

OK, so how do you save money?

Most personal-finance books and/or websites advocate the use of budgets. Budgets to track your spending habits and to make sure that you don’t spend too much in consumer items such as lattes, restaurants, and designer clothes.  Hopefully you will notice all the ways in which your money is being mismanaged and you will fix it. The problem with creating a budget is that no one likes to budget.

I don’t like to budget either, that’s why I suggest to save by taking money off the top, to pay yourself first, even before the government takes its cut. Talk to your employer or to your bank and ask them to automatically take a percentage of your paycheck and to deposit it into your registered retirement account.

Reduce your tax bill by saving for your retirement

When you take money off the top and put it into your registered retirement account, you are also reducing your taxable income.

Here is a quick example: Let’s say you earn $40,000 per year. If you take $10,000 and put it into your registered retirement account, your taxable income is only $30,000. You pay less taxes because you’re in a lower tax bracket.

Unfortunately, ours is a progressive tax system ( I prefer to call it “oppressive” ), which means that if you earn more, you are taxed at a higher rate. In Canada, at the upper scale, people are taxed way in excess of 50%. Can you imagine? More than 50% of your work is taxed away from you.

Start saving today, even if you save a small percentage

My suggestion is to start saving 10% of your income. For many this is a big move. If saving 10% is too much, then start saving 5% or even 2%. The important thing is to get started. Once you get started, once saving money becomes a habit, then you can gradually  increase the percentage of your savings year after year.

My saving habits

Once you have decided to save a percentage of your earnings, then you need to figure out how to live with what is left over. Life is made of a thousand small decisions. This is how I go through the process of spending less so that I can save more.

  1. I don’t have cable. When I want to watch a movie I use Netflix. A great movie which was released two years ago, is still a great movie today. Movies don’t go bad after two years.
  2. I buy my clothes at Walmart. I am not endorsing Walmart, but I think it is dumb to spend $80 for a pair of designers jeans when I can pay $20 for normal jeans. Also, I only buy new clothes when my old clothes begin to tear.
  3. I cut my own hair. One day I was frustrated because my favorite barber (the one who only charges $15) was too busy. I went across the street to his competitor who charged me $35 for a haircut that wasn’t any better. I was so upset with the price that I went to buy my own hair cutting machine. It took me half an hour to learn how to cut my own hair and now I have become an expert. I spend 5 minutes cutting my own hair every Tuesday and the cost is $0.00. I believe Mr. Money Mustache also cuts his own hair.
  4. For transportation, I prefer my bicycle, then public transportation and finally Uber. Taxis are too expensive.
  5. Recently a friend of mine invited me to celebrate her birthday at an expensive restaurant. In spite of liking this friend very much, I decided not to go. My budget for restaurants is $20 or less.
  6. For wine, I try to stay below the $10 price range.
  7. I have a thing against Apple products. I think they are too expensive. My Android phone does just as good a job sending texts for a lot less money.

How about you? What are your money saving strategies? What are your consumer habits? In which ways are your frugal? In which ways do you spend too much?

I know many of you don’t agree with me in one way or another, please feel free to speak your mind.

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The case against the “Buy and Hold” strategy

f2Enticing Investment Headlines

We’ve heard it all over the news, on TV, in the papers, on the radio, the internet and every communication medium there is. Here’s the typical headline:

  • Hot stocks to own for 2016
  • Undervalue stocks you must buy NOW
  • Stocks with amazing growth potential
  • Here is the new Apple

Every reporter has a story to sell, a reason to pitch a company. Your financial advisor has some recommendations of his own. Even your Uber driver will tell you to buy.

However, no one tells you to sell.

When to Sell a Stock

It is my belief that knowing when to sell is as important, or even more important than knowing when to buy.

According to Hewitt Heiserman author of the book “It’s Earnings That Count,” only 25% of the stocks in the US stock market accounted for 100% of its gains. The other 75% broke even or lost money. He also claims that 1 out 5 stocks has gains in excess of 300%. Conversely, 1 out of 5 had losses of over 75%.

If you look at the NASDAQ for example, most of its gains have been driven by a few stocks such as Apple, Google, FaceBook, and Amazon.

The way I see it, there is one way to significantly tilt the chances of winning  in your favor: to sell the stocks which are draining your resources and of course, keep those who continue reaching new highs.

Create systems to buy and sell stocks

I believe that every investor should have systems. There are many systems which can work as long as the person sticks to it and creates some selling rules.

For example:

  • Invest dividend paying stocks. And sell as soon as the stock stop paying dividends.
  • Invest in companies with net profits. And sell as soon as there is a loss.
  • Invest in companies with increasing earnings. And sell when earnings stop increasing.

There is one thing for sure. Even the best companies will eventually go down. Backberry has gone down from $148 in  June’08 to $6 May ’16? If you don’t know when to get out, if you don’t have selling rules, you might end up with a net loss.

You might say: Well, the Dow Jones and the S&P 500 are great indexes to invest over the long term.

That is completely right. But even major indexes like the Dow Jones and the S&P 500, they don’t just buy and hold. They have a system. They have a set of requirements for companies to be part of those indexes. Once a company doesn’t meet those requirements, that company is kicked out of the index.

A word from legendary stock traders

Here is a great quote from legendary trader Nicolas Darvas from his book “How I Made $2,000,000 in the Stock Market

“I have no ego in the stock market. If I make a mistake I admit it immediately and get out fast. If you could play roulette with the assurance that whenever you bet $100 you could get out for $98 if you lost your bet, wouldn’t you call that good odds?”

In the stock market we have this opportunity to get out of a position and to limit our losses.

Here are some lessons from trader and entrepreneur William O’Neil author of the book “How to Make Money in Stocks.”

“I make it a rule to never lose more than 7 percent on any stock I buy. If a stock drops 7 percent below my purchase price, I will automatically sell it at the market – no second-guessing, no hesitation”

“The whole secret to winning in the stock market is to lose the least amount possible when you’re not right.”


Here is another lesson from legendary trader Bernard Baruch:

“If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he is wrong.”


Learning when to sell is more important than knowing when to buy. For example, let’s say that you buy  100 companies at random. If you believe Mr. Hewitt Heiserman, 1 out 5 of the stocks will have gains in excess of 300% and 1 out of 5 will have losses in excess of 75%.

If you follow William O’Neil’s advice to sell when a stock trades below 7% of your purchase price, you can eliminate all the big losers and you can let your winners ride. If your winners start going down, let’s say 10% to 15% from its top price, you sell them  and lock-in those gains.

Do you have a buying strategy? Do you have a selling strategy? Share it with the rest of us.

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“Buy And Hold,” Money managers don’t follow their own advice

Spending time with friends
Spending time with friends

Practically every financial adviser in North America gives the same piece of advice to their clients:  “buy and hold”. Of course financial advisers have a strong economic incentive to keep your account in their books, they don’t want you to sell because they get a trailer fee of 1.5%. This fee is paid to the adviser for as long as the client stays invested. .

A common meeting between financial adviser and client
  1. You meet your financial adviser. Either you choose someone at random at your local bank or one arrives at your kitchen table because a friend or a family member referred him.
  2. The adviser asks a few questions to determine your risk tolerance so that they can classify you in one of five investment risk tolerance categories. These categories are: Conservative, Moderate Conservative, Moderate, Moderate Aggressive, and Aggressive.
  3. Once your risk tolerance has been identified, the adviser chooses one of their company’s mutual funds and buys it for you.

If at any time the value of the mutual fund goes down in value and you call in order to inquire about your account, you are told in firm terms. “Our strategy is to buy and hold.” You are told to hold until you need the money, and if you cannot handle the volatility, you are advised to switch to a more conservative category.

Given this piece of advice, “to buy and hold,” do you think that mutual fund managers follow it themselves?

Of course not.

While investors are told to buy and hold, many mutual fund companies have a portfolio turnover of over 100%. This means that 100% of the securities within the fund are replaced over the span of one year. It is not uncommon to see portfolio turnover as high as 500%. This is not the buy and hold strategy which is pushed down your throat.

Side note: The turnover of Index Fund is close to zero, but a financial adviser would never recommend and Index Fund because Index Funds don’t pay any trailer fees.

How is a portfolio with a high turnover a detriment to a mutual fund’s performance?

Lots of commission. The more turnover, the more buying and selling. The more buying and selling, the higher the commission expense. The higher the commission expense, the less money for you the shareholder of the mutual fund. .

Bid and ask spread. Stocks always have a price spread. For example, someone might be willing to sell shares of Royal bank for $21 and someone might be willing to buy shares of Royal back for $20. The difference of $1, between the bid and the ask is called the spread. When a mutual fund wants to buy, they buy at the “Ask” price and when they want to sell, they sell at the “Bid” price, therefore they are always losing on the spread.

Market impact. The size of a big order to buy stocks can influence their price. Imagine that a mutual fund wants to buy one million shares of Royal Bank which is trading at $20. The mutual fund buys all the available shares which are selling at $20 and in order to buy more they have to offer more money, let’s say $21, and if they buy all the shares available at $21, then they have offer to buy at $22 in order to be able to buy more shares. The bigger the quantity of shares a fund buys, they bugger the impact they create in the market and the more they end up paying for the shares they want.

Taxes. When a mutual fund buys and sells stocks, some of them are sold at a profit. When stocks are sold at a profit it triggers a capital gain. When there are capital gains, there are taxes to be paid. Unfortunately, it is owner of the mutual fund, you, the individual investor who ends up paying those taxes.

Why do mutual fund companies have high turnovers?

There are two main reasons.

Seeking for Alpha: Mutual fund managers are always trying to outperform their peers and their benchmark. If they outperform their peers and the benchmark, they will want to use that outperformance for marketing purposes. In order to outperform, they are constantly buying companies they think will outperform.

Window dressing: Every quarter, mutual fund companies disclose to their clients the names of the companies they are holding. Right before the disclosure, they get rid of all their losing stocks and they purchase the most popular stocks of the quarter. This activity give the impression that the fund always has the best stocks in their portfolio.


Statistic research shows that buying and holding good companies is a long term profitable strategy. If investment advisers want their clients to follow that strategy, maybe they should make sure the mutual funds they recommend also follow the same strategy.
What should an individual investor do? If you have a financial adviser, tell him that you like a buy and hold strategy and for that reason, you want to invest in mutual funds company which follow this philosophy. To be more precise, you want to invest exclusively in Index Funds and/or ETFs.

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