Refinancing

Thinking about refinancing my house....

According to the Wall Street Journal today, I could get a 15 year fixed rate mortgage at 3.5% (now I have a 30 year fixed rate at 5.5%).

Switching to 15 yr at 3.5% would save me $156,000 over the remaining life of my loan and would cost an extra $150 per month compared to what I am paying now.

Owning a house is a bad idea???

A Home Is A Lousy Investment - WSJ.com

Reading, Reading, Reading...

I read The Big Short by Michael Lewis a few months ago when I started the blog. It was entertaining and gave a lot of good information in a way that was easy to understand. It's about guys that made billions (with a "b") by understanding that the housing bubble was a bubble and by betting against it. Lewis mentions that the guys who did it were a fan of another book, You Can Be a Stock Market Genius by Joel Greenblatt.

Although, it has probably the worst title ever, I just finished reading it and it's really good (despite the title). Between 1985 and 1994, Greenblatt's investment firm, Gotham Capital had annualized returns of 50%. His worst year was 1987 when he only made 29.4%, but the stock market also crashed in 1987, so I'll cut him some slack. His best year was 1993 when he made 115.2%.

The book gives a lot of good information that seems to make a lot of sense. Now I'm on to a book by Benjamin Graham, The Intelligent Investor. Graham taught Warren Buffett at Columbia University and Warren Buffett wrote the intro to the book and says something like it is the best book there is on investing.... Buffett apparently loved this guy and was really good friends with him.

So, I think I'm about ready to make a billion dollars. I will keep you posted.

"Weekend at Bernanke's"

Here's a very good podcast about the Fed, inflation, etc. It may not be the end of the world like I originally thought.

Click the link below, it should start playing the file in a window. Right click the player and click "save as..." which should download the file. Put it on your iPod and listen in your car or on a walk... Let me know what you think.

The Invention of Money

This is Great

I found this through NPR's Planet Money Blog:
http://modeledbehavior.com/2011/03/16/in-which-i-try-not-to-go-shrill/

My favorite part:
"Ok, so yes you should leverage your house to the maximum the bank will allow. You should always leverage to the maxim your counterparty will allow.

If you don’t get this then you don’t get the concept of “Other People’s Money” which is fundamentally superior to your own money, because it belongs to someone else. If you lose it, they are screwed. They could try to screw you in return but it is always harder to re-screw than to screw.

If there is screwing to be done you want to be the first one to screw, not the last. This is applicable in many contexts, but especially in finance."

I also love the title of the article and therefore I will now bookmark this blog.

Put Your Money Where Your Mouth Is

Well, obviously, the best thing to do is some combination of investing in a house, Chinese mutual funds, regular US mutual funds, and online gambling. Let's think about the best way to allocate our free cash...

I see investing in a house as a long-term investment. It really starts to make sense once you are able to pay it off which takes a long time. Just for giggles I made this amortization model which I'm happy to share with you, my loyal readers. Click on the link to download it: Mortgage Example.

Jesse, Alan, and I continued the conversation from the last post through email, and I will post some highlights here just for the sake of reminding myself. It started with a link to these sites, which I find very informative:
1. House prices vs. Inflation
2. Excel file for above
3. History of Fed Funds Rate

I bought my house in September 2004 which appears to be more than halfway up the bubble. So, it wasn't the worst time to buy, but I was pretty close. Looks like if you got in around 2001, you are golden. If you bought in early 2006, you probably paid too much. I'm wondering how much of my extra cash I should put towards extra payments on the principal of my house vs. other investing options.

I think about how great it would be to have my house in Memphis paid off and just collecting rent.

I think a cool short term investment would be a mutual fund invested in China. I may start looking into this.

Meanwhile my 401k and Roth IRA are invested in normal old mutual funds and bonds and whatnot.

Somebody do some math and tell me how to allocate please.

Question

This is from Alan in the comments about the "The Fed, Inflation, and a Solution..." post. I think it's a good question, so I'll leave it up for all. Alan, my thoughts are in the comments. The question:

What makes a house an appreciable asset? Why would a house be worth more today, than when it was brand spankin' new?

Apart from factors that are largely outside of any one person's control, i.e. you got lucky (or were clear enough in your foresight) that there was a significant amount of development around your house makes the area more attractive than when you bought it, all I can come up with would be that damn inflation...