Month: April 2010

A lawsuit? No way!

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At the last Regent breakfast at the New Orleans SBL, I had the opportunity to share with some friends that I had become an investor.  After finishing my PhD in 1996, I was an adjunct for a year and a half, and after that I began to teach pro bono in Africa for period of eight years between 1998-2006.  During that period, my wife and I started the Barnabas Venture, so that we could raise funding for scholarships to make up for the lack of qualified African professors in French-speaking Africa.  Then, with some spare time on my hands between trips to Africa, I began to dream about how we could make more money so that we would be able to give even more than ever before.  That is when I began to take some serious risks in our personal and registered DIY trading accounts.

When I shared this with Prof. Rikk Watts who presided the Regent breakfast he was extraordinarily positive.  I particularly appreciated his encouragement to “thrive”.  I spent some time one evening with a number of Regent alumni, both men and women (Prof. Watts was there too), and I appreciated their joie de vivre, as we had a time of sharing in the apartment of an alumnus, and then we went to listen to live jazz music in New Orleans.  I took my leave after listening to some spirited trombone solos.  It was a great time.

Recently someone asked me in the comments section if I was going to sue Prof. Stackhouse.  I pretty much hold that as Christians we can be wronged because Christ forgives us.  This person then said that he/she was planning to sue Regent because of being forced to accept Intelligent Design. I find that unacceptable.  I am not interested in winning a battle in the courts.  The courts are predominantly leftist institutions and I am a conservative.  I hate it when those who can’t get their way through legislation force their agenda through court-made law.  This is an usurpation of democracy.  I would hope to be able instead to make cogent arguments for my views and hopefully win in the court of public opinion.

I am now told by a member of the Regent staff that my blog is being read with “great interest and passion”.  This surprises and daunts me.  And I feared that my blogs would be misinterpreted as the rantings of malcontent. But I admit that my recent postings are based upon a narrow experience with just a few from the Regent community: debates with the student PoserorProphet, interactions with full-time Prof. Stackhouse on his blog, and my recent reading of some writings of a summer-school professor, Dr. Diewert.  But this is an admittedly small sample of what Regent College has to offer and I am by no means writing off the school.   So I asked a few people what they thought, including a full-time professor at a theological school with years of experience in administration.  For the most part, they have encouraged me not to back down.  Indeed, I had the impression that as someone outside of academics, I am able to say certain things insiders might wish to say, but for various reasons are not permitted.  E.g., I can openly argue that the diversity created by affirmative action has seriously lowered quality–a position usually only maintained by retired professors who no longer fear repercussions for expressing unpopular opinions.  I can also see why students would be reluctant to criticize the administration or a faculty member, or why fellow professors would hesitate to criticize their colleagues.

I am an alumnus and an historical supporter of Regent College and no lawsuit has entered my head.  I am appalled by the person who suggests taking a lawsuit against Regent.   But I’ve questioned the wisdom of allowing certain anti-capitalist and anarchist tendencies to find a home at Regent because I am wondering aloud in the blogosphere how those who are making the money which supports theological education, through risk taking and hard work, should react when that education evidently promotes views which if implemented would undermine their ability to “thrive”–and this doesn’t apply to Regent College only.  Obviously Regent is a wonderfully diverse place and there must be some differences of opinions, at least I hope that there is.  And one could question why I would chose the public space called “the internet” to try to initiate a discussion.  Well the answer to that is quite simple:  It seems entirely appropriate to me to express the disagreements that I have with the views of Prof. Stackhouse, PoserorProphet or Dr. Dave Diewert, here in the blogosphere, because that is where I became acquainted with their views.

A HELOC Strategy: How to use a home equity line of credit to create investment income

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Jonathan Chevreau of the National Post is one of the best financial columnists in Canada and I admire him because of the practical information that he provides to Canadians wanting to know how to invest their retirements savings.  He now has a column about HELOCs — home equity lines of credit:  Be wary of home-equity lines of credit.  Chevreau writes:

Veteran mortgage broker Michael Maguire has seen too many clients with balances at or close to the limit. Lenders portray HELOCs as assets, but they are debt products, making them potentially dangerous for those not disciplined in handling money. “Most seem to find it too easy to borrow and end up living at their limit,” says Mr. Maguire, of London, Ont.-based Mortgage Wise Financial.

I agree.  One should never use a HELOC to create consumer debt or bad debt (see my post, “Is debt sin?“).  But it is an excellent product for the small business owner.  I know a local businessman  in my neighborhood who bought the commercial unit in which he has his store with a HELOC.  He has a low interest rate (it was prime) and he can pay it off or draw from it depending on the cash flow of his business.  It is has been an extremely useful debt product for his business.

When the credit crisis hit in earnest in the Fall of 2008, we opened up a line of credit, and it has been a major boost to our investments.  I was able to pick up some serious value on the TSX in stocks whose distributions were many percentage points above the interest rate.  This helped me to formulate a strategy for investing.  As a conservative investor, I try to keep my line of credit low, at no more than about one-fifth of the credit limit so that  if the market goes down, there is still sufficient credit to “average down” by picking up larger positions of the same stocks as the prices plummet during a bear market.  Thanks to the HELOC, I’ve now been able to establish a steady income based on these distribution paying stocks (mostly in the Canadian oil and gas sector).

There are some serious risks:  (1) Most of these distribution paying stocks began to lower their payouts almost the moment I started using the HELOC because of the drop in commodity prices.  But then their share prices plummeted too as direct result.  Consequently, I was able to pick up even more shares at unbelievably low prices and to keep the income well above the interest payments.   (2) The interest rates could climb.  But from the time I started this strategy until today, interest rates have gone down and stayed at historical lows.  In anticipation of interest rate hikes, I regularly pay down the line of credit as fast as possible.  When it’s at zero for a while, then my risk appetite increases again.  (3) The share prices of my stocks could plummet.  But by using only a fraction of the HELOC, I pick up more positions as the market goes down.  So when the prices went down it actually helped me even though it created initial unrealized losses.   Eventually, from March 2009 until today, we’ve been in a relentless bull market–so that with a couple of exceptions, everything has gone up, up, up.  (4) Since your home is the collateral for this debt product, one has to be restrained in using it for fear of becoming homeless as result of bankruptcy.  This is another reason for using only a fraction of the credit limit.  (5) My stock portfolio is not diversified.  It is therefore highly susceptible to the volatility in the commodities market.  This choice is made because some Canadian equities in the oil and gas sector pay well, especially in the income trust sector.  Many of these will convert to dividend paying stocks in January 2011 because of rule changes and this may result in a lower yield.

Since this strategy aims at establishing an income, I’ve only done a very minimal amount of trading (i.e., “buy low, sell high”).  It is therefore a strategy of investing which is much closer to what is called “value investing” than “day trading”.  Here is a list of companies that I’ve established long positions:  erf.un, cpg, nae.un, pmt.un, day.un, bnp.un.  Those which are weighted heavily in natural gas have done less well than those which concentrate on oil.  But fortunately, the gas-weighted companies like pmt.un and erf.un have hedges that have made it possible for them to maintain their distributions at a high rate in proportion to their share price.

If there is a lesson in this for those who aspire to be righteous investors, it is to first establish equity:  the bank will not lend at the lowest interests rate without the security of some form of collateral, which usually means home equity.  This means for many years making the sacrifice of not spending money on every whim in order to pay down the house mortgage as soon as possible.

Here are some numbers to give an example of how the above strategy can work:

Using a HELOC, $31,200 spent on CPG (TSX) would buy 800 shares $39.00 per share.  The interest in the first month at 3.25% (current TD Canada Trust HELOC rate) would be $84.50; the dividend from 800 shares of CPG at .23 per share is $184:  Thus, the net in the first month is $99.50 or .32 % of the total capital put at risk.

On PoserorProphet’s advice

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PoserorProphet challenged me yesterday:

It ain’t easy, eh, Peter? You might discover a new and more joyful life if you sold everything you have and gave the money to the poor (not something I usually suggest but it seems appropriate to what I’ve seen of you). Just a thought.

This challenge is evidently based upon the story of the rich young ruler (Mark 10.17-30 and parallels). I suppose that PoserorProphet is right, and I would be happier and certainly more care-free if I sold everything and gave it to the poor:

Nah, there ain’t nobody in this whole wide world
Gonna tell me how to spend my time
I’m just a good-lovin’ ramblin’ man
Say, buddy, can ya spare me a dime?

Yeah, I don’t care when the sun goes down
Where I lay my weary head
Green, green valley or rocky road
It’s there I’m gonna make my bed

(Barry McGuire and Randy Sparks, “Green, Green”)

I just have a couple questions about the application of this advice to my life:

(1) After selling everything I have, may I just leech off my wife?  I am more than happy to do that.  Or must she also sell everything she has too?  If that’s the case then:

(2) If we both sell everything we have and give it to the poor, what are we supposed to live on  here in Canada? Do you want us to go on welfare? Should we live in government housing. You see as an investor and my wife as a business woman, selling everything we would mean unemployment. Or after selling her third of the business, should my wife return to her brothers and beg for her job back and work a salaried position? Why would that make her more joyful? Tell me what shall life be like after selling everything and giving it to the poor?

(3) Who is going to support our church, our priest and his family, when our contribution to the church is lacking. Surely some others will rise up, but wouldn’t you (Poser) require that they also sell everything they have?

(4) What of the numerous Christian ministries in theological education, evangelism, and benevolence that we have supported over the years? We will have to end our continued support for such ministries. That’s ok, as long as others step up, but then wouldn’t you tell those people too that they must sell everything they have and give it to the poor.

(5) Just exactly which poor are we supposed to give it to? The homeless? The almost homeless? The working poor? The poor in Spirit? The poor in Africa?

(6) Will the poor use the money in a responsible fashion? Let’s say I just go to downtown Toronto and hand some poor homeless person a $100,000 cheque? How would that change his life? Would it help him or would the money just be squandered within a matter of days or months? Would he just go buy blow and blow his brains away? Or would it actually change him so that he could become like I am now so that you would have to tell him too to sell all he has and give it to the poor? Then wouldn’t it just be better if I keep the money rather than putting him into the situation of you having to tell him to sell everything?

(7) What should I tell my employees? I suppose the 25 employees Cathy has would carry on after she sold her business to her brothers. But what if Cathy’s contribution to work is what holds the thing together and the business ends up bankrupt without her sound fiscal management. What will happen to those 25 employees, their wives, children and their other dependents? What of the Wycliffe student I promised a year long job too? What about my housekeeper? What are they supposed to do? I suppose they are certainly industrious and could find other employers, but wouldn’t you tell those employers too to sell everything they have and give it to the poor?  And once there are no rich people left, who is going to employ the people looking for work? Sean Hannity has a refrain:  “No poor person ever gave me a job.”

(8) What about the other people that depend on me? If we sold everything we have, there would be another family besides us that would be homeless, and then what should I tell them? Sorry, PoserorProphet called me to sell everything I have and you can come with me and live on the streets of Toronto too or in some homeless shelter (where ever it is that you are calling us to live).

(9) What about the volunteer work that we do for our church?  We use our home as the base of operations. So we should just tell the church, sorry we can’t do that work anymore because we don’t have computers and the other equipment that we need to do those ministries?  But we are more than happy to come and eat your food.  Can you please pick us up from the shelter and give us a ride?

Craig Carter wrote this just two days ago:

Liberal Christians seem awfully confident that you can be half socialist and not go too far and lose all liberty. Maybe they depend on conservatives to keep them from going all the way – sort of like teenagers depending on parents to say no when they want something harmful. Instead of thinking for themselves they just rely on parents doing the agonizing and deciding where to draw the line.

I urge you to grow up a little bit and think about this flippant advice. Your current crop of professors don’t seem willing to give you this admonition (correct me if I’m wrong); either that or you’re not listening to them.  Your counsel lacks wisdom.  I know that you aren’t really open to taking me seriously because you think that I am hilarious.  But what would be the personal ramifications to each “rich” person, their families, and their other dependents?  What would be the effects upon their churches and the other ministries that they support, if they followed your advice?  What would be the economic consequences on a macro scale if all the rich people in the world took your ill-conceived and juvenile advice?  What if every responsible person took your advice?  What would happen to all those who depend on them to be responsible and to work hard?  “And the last state of that man is worse than the first.”

I know it was what Jesus commanded the rich young ruler.  But Jesus was a prophet, not a poser, and he knew that man and the ramifications of his selling everything.  Unlike this new generation of socialist and radical Christians, Jesus did not give this same advice to every rich person he encountered.  And how do you know that it wasn’t just a test, like the requirement that Abraham sacrifice Isaac?  Is it not enough for God to know that Abraham was willing to sacrifice his son?  So had the rich young ruler showed his willingness, maybe Jesus would have said that he’d passed the test and would have permitted him to remain rich provided that he live for the advancement of the Kingdom of God instead of for his own personal kingdom.  The vast majority of rich Christians in the early church were not required to sell everything but admonished to remain generous and supportive of the mission of the church, to be hospitable and to provide for widows and orphans.  I.e., not too much different from what my wife and I endeavor to do, with the little money that the governments permit us to keep after taxes.  And actually, we could retire now and go live well in some tropical country.  But we still feel called to work so as to have something to give (Eph. 4.28).