Tag: finance

The OptionSellers.com debacle: How to blow up your portfolio in five easy steps

Right around the time when I wrote my options selling update a few weeks ago was when everyone in the option seller circles talked about the blowup of OptionSellers.com. Option Sellers, LLC was a Tampa, Florida based Registered Investment Adviser and CTA (Commodity Trading Adviser). They managed money for 290 clients. Considering the minimum investment was $250,000 and most investors likely had more money with them, I’d surmise that they were managing around $150m. On November 15, 2018, they informed their investors that not only was all their money lost but that clients would likely owe more money. Wow, let that sink in: they had a loss of more than 100% and clients are left with debts they have to cover now! Bad news for the clients who invested all their money with OptionSellers!

A failure of a small obscure adviser probably would have stayed under the radar but the co-founder published a tearful apology video, confessing that all customer accounts were wiped out “by a rogue wave.” The movie was since taken down – probably the lawyers didn’t like the idea of this kind of mea culpa so much – but it’s still available on YouTube. The story went viral (or at least as viral as something as obscure as options trading can go) and was then picked up even by the national news media, including the Wall Street Journal, CNBC and many others.

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Should have prayed before blowing up $150m! James Cordier in his apology video, via Youtube.

Quite intriguingly, their strategy imploded over the span of just a few trading days. And just to be sure, this wasn’t fraud a la Bernie Madoff but investors actually lost their money “fair and square” if there is such a thing. Is this something all option sellers should worry about? Yes, if you are as reckless as Option Sellers. If you had bothered to check what these clowns were doing it was clear that this debacle was all but unavoidable. Let’s take a look at what they did and the five obvious mistakes that lead to the meltdown…

Continue reading “The OptionSellers.com debacle: How to blow up your portfolio in five easy steps” →

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We Are Homeowners Again!

Homeless no more: We just bought a house last month! Over the internet! Well, not entirely over the internet because we actually toured houses in person the old-fashioned way. With a real estate agent, more on that below. But we eventually closed the transaction while we were on our epic trip through Asia this Fall! All the “paperwork” was done electronically! One reason we were able to pull this off was that we paid for the house in full. Applying for a mortgage would have required a lot more paperwork and notarized signatures. Probably not something you can accomplish while traveling in Southeast Asia! And just in case you don’t remember, we outline the reasons for not getting a mortgage while in early retirement in Part 21 of the Safe Withdrawal Series!

In any case, where did we buy, what and why? Let’s take a look…

Picture credit: Pixabay (this is not our new home!)

Continue reading “We Are Homeowners Again!” →

Trading like an Escape Artist: How I made money in October trading S&P Futures Options with 2x leverage

October was a scary month for stocks: the worst monthly S&P 500 return in seven years! And November is off to a volatile start as well! We haven’t even seen a real correction yet but apparently, the drop was bad enough for me to got inquiries from friends and former colleagues asking how I’m doing with our portfolio and if (and when?) I’m going to come back to the office again! Sorry, not anytime soon! As I detailed in the post two weeks ago, we are not too concerned about one month of bad returns early in retirement.

Some friends and readers of this blog were specifically concerned that my options trading strategy might have been hit badly by the wild swings. After all, I’m doing this with a little bit more than 2x leverage and with the market down about 7% does that mean we lost more than 14%? Of course not! To all the rubbernecks out there who suspect we had a bad car wreck in our portfolio last month, I’m happy to report that we actually made a small profit with this strategy in October! And continued to do so in November! How awesome is that!? Well, there were a few close calls but I was able to escape any major damage. It took some Houdini Skills (or luck???), hence the title image of escape artist Harry Houdini (Picture Credit: Lomography).

Let’s take a look at the details…

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Did Suze Orman just pour cold water on the FIRE movement?

Unless your internet was out or you’ve been living under a rock for a few weeks you must have heard about the earthquake created by the Suze Orman interview on Paula Pant’s Afford Anything podcast. Lots of people have weighed in already. I participated in a few discussions here and there on Twitter and on other blogs but I also have a few things to say that can’t be distilled into a short tweet or blog comment. So here’s a short blog post with my thoughts.

Well, you can’t blame her for beating around the bush; Suze started the podcast proclaiming that she hates the FIRE movement. And the reaction in our community was swift. And brutal! Suze Orman was called a buffoon and worse names. She just doesn’t get what we are all about in the FIRE movement! OK, let’s congratulate ourselves on what the royal smackdown we gave the Matriarch of Money… Are we done patting ourselves on the back? Great, so let’s face reality again. Sorry to tell you all, but we merely convinced the folks who need no more convincing, i.e., other members in the FIRE community. And I have the concern that, wait for it…

…to a neutral observer, Suze Orman won the argument!

That’s because she got the headlines in the popular media after the interview; Business Insider, Market Watch and Time/Money Magazine. Watch the YahooFinance video of Suze and the journalists making fun of us!

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Headline from Business Insider, 10/8/2018.

The average reader/viewer who’s never heard about the FIRE movement walks away with the impression that the great money expert Suze Orman just schooled a bunch of uneducated financial clowns. Sadly, people might get the false impression that early retirement requires such an insurmountable large pile of cash that it’s not even worth trying to pursue FIRE. I’m not saying that this is true because nothing could be farther from the truth but it might be the perception to a lot of people unfamiliar with FIRE. To me, it sounded like Suze wanted to ruffle some feathers and that’s why she approached Paula and volunteered to go on the podcast! Did she use us to get herself into the spotlight and sell her strange “work until you’re 70” narrative again?

So, we got a lot of work ahead of us dealing with the Suzes of the world! Notice I’m using the plural here. Most of us are probably not famous enough to talk to Suze in person. But we are still going to encounter a lot Suze lookalikes in our lives; relatives, friends, neighbors, colleagues etc. who have an equally unrealistic and bombastic “you need at least a gazillion dollars to retire early” mentality. Here are a few suggestions on how to discuss FIRE when encountering a skeptic like Suze…

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The Ten Commandments of Whole Life Insurance

Whole Life Insurance has a bad reputation in the FIRE community! Does anyone here have a Whole Life Insurance (WLI) policy? Anyone? It seems so toxic that even if anyone had a WLI policy they’d be afraid to admit it for fear of ridicule. I only recently “came out of the closet” when I was chatting with folks at the April CampFI over lunch and the topic came up. People were astonished: Huh? Big ERN has a WLI policy? And his wife, too? Isn’t WLI only for naïve and unsophisticated folks that fall for the insurance salespeople’s pitches? Sometimes! But just like many all other issues in personal finance, there’s rarely a simple, clear-cut and universally applicable recommendation. I would argue that WLI is not a bad option if certain conditions are satisfied! And it’s a loooong laundry list of issues to consider and conditions to satisfy. I came up with no less than ten things to consider and in an absolutely shameful, “clickbaity” kind of way, I call them the Ten Commandments of Whole Life Insurance.

Let’s take a look… Continue reading “The Ten Commandments of Whole Life Insurance” →

An Updated Google Sheet DIY Withdrawal Rate Toolbox (SWR Series Part 28)

Since I first published Part 7 of the SWR Series with the accompanying Google Sheet in early 2017, I’ve made several changes and enhancements. Sometimes without much explanation or documentation. So, it would be nice to do a quick update and itemize the changes since then. Whether this is the first time using the toolbox or you check it out again after more than a year, I hope you all find the new features useful… Continue reading “An Updated Google Sheet DIY Withdrawal Rate Toolbox (SWR Series Part 28)” →

Eight Lessons After Eight Weeks Of Early Retirement

Eight weeks of retirement already! Actually, a little bit more by the time this goes online, but it was exactly eight weeks when I started writing this. Early retirement is a lot more than number crunching and safe withdrawal simulations, so today it’s time to reflect on the first two months of Early Retirement. Everybody’s experience will be different and here’s what have I learned, what surprised me and what didn’t surprise me…

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Why is Retirement Harder than Saving for Retirement? (SWR Series Part 27)

Welcome back! It’s time to add another piece to the Safe Withdrawal Rate Series (see here for Part 1). After churning out over 20 parts in this series so far I wanted to sit back and reflect on some of the things I’ve learned from my research. And something occurred to me: Withdrawal strategies in retirement aren’t easy! Contrast that with Mr. Money Mustache’s Shockingly Simple Math of Early Retirement post and Jim Collins’ Equity Series that was rewritten into a book The Simple Path to Wealth. Very influential posts and they are among my favorites, too!  So, naturally, I agree 100% that saving for retirement is relatively simple!

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Saving for Early/traditional retirement: three simple ingredients!

Disclaimer: Saving for retirement with a savings rate of 50% or more as is common in the FIRE crowd requires a great deal of discipline. Especially over a 10+ year time span. It’s not easy! Only the math behind it is simple! It’s a bit like dieting; conceptually very simple – healthy diet plus exercise – but it’s not that easy to implement and stick to the plan!

Then, shouldn’t retirement be just as simple? Why am I making everything so complicated? I’m approaching 30 parts in this series, many of them with heavy-duty math and simulations and still a few topics on my to-do list! Am I making everything more complicated than necessary? Am I just trying to show off my math skills? Of course not! Just because saving for retirement is relatively simple it doesn’t mean we can just extrapolate that simplicity to the withdrawals during retirement. And that’s what today’s post is about: I like to go through some of the fundamental factors that make withdrawing money more complicated than saving for retirement. Think of this as an introduction to the SWR Series that I would have written back then if I had known what I know now! 🙂 Ironically, some of the issues that make saving for retirement so simple are the very reason that withdrawing during retirement is more challenging! So, let’s take a closer look…

Continue reading “Why is Retirement Harder than Saving for Retirement? (SWR Series Part 27)” →

A Reader Case Study: Whole Life Insurance

Welcome back! I hope everyone had a great 4th of July Holiday (U.S. Independence Day for non-U.S. readers)! Before we get started I have a small favor to ask: At the upcoming FinCon in Orlando in September, it’s time again for the Annual Plutus Awards. As you may recall, last year, my small blog was one of the finalists in the “Blog of the Year” category, thanks to the support of the many faithful readers. If you like what I’m doing here on the blog please nominate the ERN blog again in the relevant categories! Please head to the Plutus Award Nomination site and enter your ballot! You can nominate up to three choices per category and you don’t even have to fill out all categories. Only one submission per IP address, please! Thanks in advance for your support!

Today I have a case study about whole life insurance. Not the most popular investment vehicle among the FIRE enthusiasts, see, for example, an excellent summary of the disadvantages of Whole Life by White Coat Investor (though, for full disclosure, I don’t agree with all of his claims and calculations). But let’s face it: a lot of folks have policies and now wonder what to do about them. Here’s a case study about the tradeoffs when considering either cashing out the policy or keeping it intact. Let’s look at the numbers…

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Ten things the “Makers” of the 4% Rule don’t want you to know (SWR Series Part 26)

For today’s post, I thought it was time to add another installment to the Safe Withdrawal Rate Series. 25 posts already! What have I learned after so many posts? Well, I started out as a skeptic about the so-called “4% Rule” and I thought it might be the time to poke a little bit of fun at the “makers of the 4% Rule.” Just to be clear, this post and the title are a bit tongue-in-cheek. Obviously, the “makers” of the 4% Rule, the academics, financial planners and bloggers that have popularized the rule aren’t part of any conspiracy to keep us in the dark. Sometimes I have the feeling they are still in the dark themselves! So here are my top ten things the Makers of the 4% Rule don’t want you to know… Continue reading “Ten things the “Makers” of the 4% Rule don’t want you to know (SWR Series Part 26)” →