Financial Reference

I just realized that I have been posting for a while and have never introduced myself. Even though I am only 26, I have been investing for about 10 years. I started by using my parent’s financial planner to help me pick two active mutual funds.. She recommended I pick funds with high Morningstar ratings. It was more than I knew at the time so I followed her advice.

Later, I found out she had a cushy relationship with the fund family she pushed the hardest. I doubt there was anything illegal going on and the fund family has a decent lineup of funds but she did have a conflict she did not disclose to me. Ever since then I have been a skeptic about investment advice and have been learning how to manage money on my own.

Since that time I have spent way too much time talking to other investors, reading books, 10Ks, and 10Qs — doing anything I can to gain an advantage — and more importantly, doing anything I can to make sure I don’t screw up. Despite all of my efforts to the contrary, I have done a lot of dumb things.

The two biggest mistakes I’ve made are that I have been overconfident and overly aggressive. During college and especially during law school, I played a high stakes financial game and didn’t appreciate the risks I was taking. I took out as much student, credit card, and margin debt as I reasonably could (I never paid more than 10% on the debt) and invested the proceeds in undervalued stocks. Even though I was eventually proved correct in my valuations, for a while my positions went the wrong way. I didn’t have any extra capital to support my positions in the short-run and was forced to periodically liquidate part of my portfolio.

Eventually I was proved to be very correct in my analysis and was rewarded for taking the risk. But it was still a mistake to lever myself to the point at which I could not support my portfolio. Had I had extra cash flow from a job, more lines of credit, or less leverage I could have survived any liquidation and not had to sell any of the undervalued shares on the open market.

Since then I have always left extra margin in my investment account and had lines of credit available for emergency. Over time, I will scale back my leverage to decrease my risk and increase my cash flow. It will allow me to have more flexibility and more toys as I grow older.

Unlike a lot of blogs, I don’t reveal my personal balance sheet or income statement. All I can say is that my wife and I are well-off and should have the freedom to retire early even after paying for our child’s education.

The Important (Non-Financial) Part of My Life

I got married in June and have a 10-month old boy. (I know, the math doesn’t work…) My wife and I both work in the actuarial field — so I usually avoid talking about insurance in my blog even though it is a very important part of the financial picture.

My background is as varied as my interests — I have degrees in math, economics, and psychology; and I have an unused law degree. I also manage accounts for a couple of friends and have had very good results managing their accounts and my own.