How Our Brains Work

Wouldn't that be great if I knew how our brains worked?  Well, I do have one experience that is worth analyzing. While speaking with a friend today, we both tried to remember the name of a person we had both met at an event. I could picture the mysterious person in my head but I could not recall her name. However, I knew that I knew her name. I felt confident that the name would surface if only I "forgot about it" and let my brain work. Our conversation continued and I never did think of the name.

But, several hours later while simply walking in my house, the name popped into my head. I had just completed my computer work for the night and was very relaxed as I made my way to my bedroom to change clothes. Was it the relaxed frame of mind? Why then, at that moment, did the answer come? I also know that sometimes I am pretty confident that I won't remember the name. But, today, I knew that I had the information stored.. I just couldn't make it surface. This experience, which happens both with recalling names and with solving problems, very much intrigues me. It makes me wonder: "What else can my brain do?" What other powers does my brain behold. It apparently was fully capable of digging up that name and not only could it do it without my conscious help, but it seemed to prefer to do it without my conscious help. The more I tried to become engaged, perhaps the less likely my brain would be to find the name. I liken this experience to having to let you computer finish a task that it gets stalled on. You'd like to click the icon 20 more times..but after a few bad experiences with that move, you realize you just have to wait. Eventually the file is opened.

The feeling of the name popping into my head was quite exciting. It gave me thoughts of other possibilities. But, it also made me wonder..why doesn't my mind give me the solutions to other questions that I ask it..such as "how do I make 10 million dollars tomorrow?"  Obviously I have a bit more faith that I will recall an acquaintances name, and the information was already stored. But, I think there are other criteria for determining what the brain can do easily on its own.

I know that many website coding solutions come to me in the same manner...after walking away and calling it quits for awhile...But, why..why then does the brain actually do the task that you wanted it to do so badly before. I have also experienced this with disagreements with people, and physical projects around the house. I recently had a leak near the tank in one of our toilets. At first glance, I only wanted to call a plumber or handy man and never think about the problem again. I figured the cost would be worth it because if I started the project it would involve at least 2 trips to Home Depot, a few mistakes and 4 total hours of my life.

But, a few hours later..an idea about how to troubleshoot the problem popped into my head.  A quick trip to Google led me to a step by step instruction of what I should do next to locate the problem. As soon as I read the description, I immediately felt that now it made more sense to do the work myself than to call a plumber. I felt it might be cheaper and faster to do it myself. But why...why did my mind solve this problem? I actually kind of decided on my own to not solve the problem..to outsource it...but my brain seemed to think that was a hogwash idea and went to work solving the problem anyway. But, I was consciously just talking with my wife and playing with the kids. I was in no way even pondering the problem...but my sub conscious was busy working.

It seems that some types of problems are almost always solved by the mind. What I wish to ponder now  (of course, I"ll likely not get my answer now :) ) is what criteria must be met for the mind to decide if a problem is worth working on. As I mentioned..it seems some problems are "too large" or unworthy of the subconscious effort. On the other hand..the sub conscious seems so methodic..so unthinking...it won't really listen to me..it goes and solves problems I don't even care to solve. So, the first criteria seems to be that the mind is presented with a problem.

1. A problem is presented.

It seems the next criteria is that the conscious mind must believe that the sub conscious mind can solve the problem.

2. Conscious mind must believe solution is possible

When I envisioned myself going to home depot 2x and spending 4 hours fixing the toilet..I did in fact envision myself fixing the toilet. I didn't want to go through all the work, but I believed I could do it.
I've taught myself html/css/ and PHP...I think I can figure out a toilet. But, what I decided is that I did not wish to solve the toilet problem. I believed that I could..but did not want to. However, the sub conscious took the problem and the belief and went to work.

I think the belief element explains why some problems do not seem to be solved. It may not be due to a lack of power of the sub conscious but due to a lack of faith by the person. However, while this seems to hold true in experience..why should it be true? Why would the sub conscious mind care what the conscious mind "believed".  It is almost as if the sub conscious is in fact limitless and does many things without direction...but it does limit its usage to what the boundaries imposed by the conscious mind. 

The question is...can such a faith be increased on purpose.  I think its great that I can fix toilets and small web development problems and remember a few names when the need arises..but what about bigger problems...how can I make my mind dig up those answers.  I have a mortgage on my house...that seems like a problem I'd like to eliminate...go to work subconscious and come up with a solution by morning for paying this house off. These types of problems would be nice to solve. You might say..well..your subconscious will solve it..it will just take 3 years to do so..and perhaps that is true...  But, I'd like to learn how to jumpstart that process...I'd like to jump to bigger and bigger problems...

Perhaps just like everything else..you have to start small but gradually increase the task. You can bench press a lot more weight than you currently can..but it will take small increases in the weight to builld your muslces and faith to the point where you can lift more. The same is likely true for income, health, and dieting. Maybe I can't see how to make an extra $100,000 this year..but perhaps I can believe and come up with a way to make an extra $20,000. I suppose you can ask you sub conscious for the answer to any question to which you have faith it can answer. And, after impressing you with small matters, you can gradually increase the challenge.

So, add sub conscious training to your weekly workout routine....

read books
pray
exercise
play with kids
time with wife
ask sub conscious something slightly more challenging than what I asked last week, etc.

I'll let you know what I come up with.

You let me know what you think too.

Variety

I went to the gym today and realized that I did not feel like doing a leg work out. Something about squats and leg extensions just sounded painful and boring. So, I just went straight to upper body. I usually start with legs to get them out of the way. I've heard that working the legs and doing other exercises that work out the largest muscle groups releases hormones which makes all the other muscles grow more. In any event, I skipped legs...until the end. Towards the end of my workout, I felt like my body wanted to do some squatting. So, instead of doing the normal squat machine, I loaded up some plates on a barbell and did about 4 sets of real squats. I then moved over to the squat machine and did two more sets. I threw in some leg extensions and leg curls until failure for good measure. In the end, I worked out my legs much more than usual and I started the workout without an inclination to do legs.

I think it was the fact that I saved the legs till the end that led me to do more...by why more? Why didn't I just do the normal leg workout. Sometimes after about 20 or 30 minutes of working out some chemicals seem to get flowing in the brain which make you feel like you just "love" to workout. You feel happy and proud that you are working out and it feels fun to be there. So, by the end, maybe the fun hormones were firing away and doing 3x as much leg work just sounded fun.

Or, perhaps some of it was due to the fact that I did legs in a different order. And, this is the point of the blog post. As I pondered the fact that changing up the order actually led to more working out instead of less, I realized that my personality just likes variety. I took the Meyers Briggs test and found out I am an ENTJ. One of the traits on an ENTJ is that they are easily bored with repetition. It was actually freeing to learn this as a personality trait because it helped me understand that not everyone gets bored so easily as I do. I also am learning that I have to structure my life and work around this propensity to get bored easily by repeated tasks.

On the one hand it is a challenge. In web design for example, I benefit financially from doing a task many times because I get quicker at the task. If I am billing by the project, I make much more the 10th time I do a task than I do the first time. But, believe it or not, sometimes I Just don't feel like doing certain tasks because I've done them so many times before. I procrastinate a job that pays quite easily just because it seems tedious or boring. On the other hand, I'll spend an entire Saturday trying to learn a new web design skill for a project that is only a hopeful project.  But, I love learning the new trick. I don't even mind that much if I don't get the job to which it pertains. Just the excitement of growing and learning is a motivating.

So, I'm pondering how the desire to do something new can be financially rewarding. Learning tasks once in a rudimentary way seems to not lead directly to revenue. But, perhaps if I were too teach what I learned then it could produce revenue. I really love to teach. Every time I learn anything new, I like to teach it. The subject doesn't really matter. Another option is to learn new web design tricks and teach employees how to repeat the tasks...this is probably the most direct method. However, being a teacher of well...anything new I learn sounds fun. Here are some things I could teach on:

• Discounts on Disney World hotels (seriously, I have some amazing tricks and an amazing track record)
• Web Design
• Incorporating a business
• Taxes
• College Ministry
• Relationship between Taxes and Economic Growth
• Saving for retirment
• Buying a car
• Insurance

Well, I'll be sure to share with you my next greatest lesson.

It was just ruled that Transocean (RIG) is not liable for some aspects of the oil rig explosion in 2012. Whatever the ruling, RIG is up 9% in after hour trading. Unfortunately I can't sell after hours with my broker. We'll have to see where things settle tomorrow morning. Very exciting! I guess my hopes from the previous post are coming true sooner than expected.

Transcocean coming back (RIG)

Well, in November I posted my recommendation for buying Transocean (RIG), citing that it was #1 in its industry and had severely beaten stock price only due to oil spill woes and not to actual financial results. The last few days RIG has shown an amazing comback. I will admit that I bought a lot of RIG and then watched even my low priced purchases turn into a 15% loss. I bought 4 times, each time lower than the previous and I still saw my balance at down 15%. I did not freak out and now I am down only 0.5%. I plan to sell when I am up 8-10%  I made my last purchase when I recommended you do so, a day before ex-dividend. The dividend payment on that last purchase was 1.77%...not an annual return of 1.77% but the dividend itself was that much.  I imagine in the next few weeks I will sell at an 8-9% appreciation and factor in the 1.5% or so dividend for about a 10% return in 4 months.

I just think its great that such value options exist. Probably I should hold onto RIG until it rises up to $70 a share...but my goal is usually 10% in 3-6 months time. Some stocks seem to get up to a 10% gain and then go back down or hover in the same spot for a year. I like to sell when I'm up and quit watching the darn think. Like in this case with RIG, it has taken me through an emotional roller coaster enough already. I'd like that to end and 10% in 4 months if fine by me. A recent post chronicles a similar story with CSCO, although that one required about 7 months of waiting and purchases over about a 4 month period. CSCO has risen past when I sold it..but not by much..and without selling CSCO I would not have been able to buy as much RIG.  So, I prefer to make 10% on two occasions in a year instead of making 11% in one year..maybe.  Such has been my luck so far atleast.

Nevertheless, I remain a friend of value investing and encourage you to do the same.

My friend bought a car with cash today

Well, it was a proud day for a friend. A family friend, just out of college and in the first year of working, bought a car today. After a few months of thinking about it and counting his dollars, he came to the conclusion that it made the most sense to save up and pay cash for his first vehicle. I am very proud of his decision. Now, he has some significant debt from college so not adding to it with car loan makes sense..but not everyone sees things that way.  One argument for buying a cheaper used card that I think made sense to him, was that he realized that if you buy a newer car and pay a loan on it for 5 years, then after 5 years you will be driving the same car you refused to buy today. Only, not only will you be driving an old used car but you will have paid a lot of money for it plus a lot of interest. If you're going to end up in a used car in a few years, wouldn't it make sense to just buy that used car now?  Also, the amount of depreciation from years 5-10 is not only a lower percentage but also a lower dollar amount than the depreciation of years 1-5.

The car he bought today is a 2004 model, which makes it about 7 years old. He'll see some depreciation if it he keeps it 5 years but not nearly the depreciation he'd see if he bought a much newer and more expensive car. Overall buying newer cars is not "bad" but it is pretty ridiculous when you have a negative net worth and little cash on hand.

I like to suggest the beable buy it twice rule. You should have enough money in the bank in real accessible cash to be able to purchase your car 2x over. If you have 2 cars then you'd need their total value x 2. The reason for this rule is two-fold. One, by postponing gratification and creating the habit of saving, you will value the dollars you spend more. You will grow to like and enjoy the feeling of having a good amount of cash in the bank. You will realize that the car purchase is not as much a purchase as it is a "trade". You are trading your earned cash for the car. Once you buy the car, the cash goes away. If you spend your cash as soon as you collect it, you will of course have 100x more feeling for that cash then when you spend borrowed money, but you won't have as much discipline as when you save 2x the purchase amount.  The second reason for saving your cash until you have 2x the purchase amount is that at that point you can drop comprehensive insurance on your car. You don't need to protect yourself from having to replace your car because you have the cash to replace your car. This means that if you drive your car into a tree and ruin it, then you can go out and buy another car. If you can't do this, then you have to pay for full coverage insurace on your car. You of course must have full coverage if you borrow to buy you car because the bank that lent you the money knows for a fact that you can't pay for a new car. How do they know you can't pay for a new car?...well, you couldn't pay for the first one..which is why you came to them to borrow for it.

Some people will say "if I don't have full coverage and I do get in a wreck, then I'll have to pay for the repairs"..to which I say the same thing I say regarding "free" public education..."trust me, you're still paying for it".  Firstly, if you have to carry more insurance then you are paying more in premiums. If enough years pass without making a claim, then the insurance company wins..which of course they do most of the time because after all they are a business that requires profits to survive. Then, if you do make a claim, the insurance company is likely to still win because a) they collect your deductible first and b) they can raise your rates. Over time, just like gambling in a casino.. you will loose..because the game is designed for you to loose. The only way to beat a casino is to not go into it or to own it. The only way to beat an insurance company is to not use it or own it. The more you can take on the risk by reducing coverage and raising your deductible, the less you are using the insurance company and the more you are acting link your own insurance company. Of course you are required by law to carry liability insurance and so you must. In fact, you might want to carry a good bit more liability than requried by law. Supppose you take out a van of students on a mission trip or a bus. If you do $50,000 of damage to 7 people plus a $20,000 damage to a vehicle, then you're going to need to pay up a great deal more than the minimum liability required coverage. However, if you have millions in the bank, you again can self insure this aspect and only carry the required liability amount.

A few years ago my wife's $2,000 Saturn sedan with absolutely no features except the manual transmission (She preferred a manual and I could see mini-vans in her 20 year horizon, so I figured I better get her that 5 speed now), got broken into. The thiefs stole maybe $200 in music CDs, tools, and other stuff in the car. They didn't take the change in the cup holder for some reason.  Well, if we had super full coverage and a $100 deductible, then we could have made a claim and gotten $100 from the insurance company. However, over years and years of only carrying liability, we've saved thousands of dollars in insurance. So, when it came time to replace the items in the car, we just replaced them. We functioned as our own insurance company. Statistics being what they are..we are still way ahead over time and will likely continue to win in this game.

When deciding what car to buy or more importantly, deciding how much to spend, remember to take a little snapshot of your net worth. Your net worth is how much money you have. It also includes other assets like your house and usually it includes cars and furniture and stuff. I don't like to count my cars and furniture. For one, neither are worth that much in my case so why count pennies when you're busy counting Benjamins. Secondly, my used furniture and cars don't really make ore save me much money month to month. They are just things I have to have to function.  Now, a house saves me money each month in rent. And, stocks and businesses generally make me money each month and year, so they really should be counted. Also, it is these assets that make money that will allow you to quit working someday and retire. You can't retire off the value of your DVD collection.

So, to arrive at your net worth, add up the value of any real estate, businesses, stocks, and other bank accounts you own. Then subtract from that hopefully hefty total, any debt you owe (credit cards, school loans, car loans, store card balances, medical bills, and home mortgage). If you end up with a negative number you have a negative net worth. You might be poorer than most homeless people. Think about that while you treat yourself to $9.00 drinks at the bar on Friday night. If you have a positive net worth then you can start to compare the purchase of your new car to your net worth. If you're net worth is $5,000 because you have no debt and $5,000 in the bank, then you might end up spending 100% of your net worth on car. This is not ideal but sometimes necessary for a first car purchase. Later on, you'll want to always be reducing the % of net worth you spend on everything. Imagine how freeing it would feel, and how much my no full coverage auto insurance make sense, if you have a net worth of $300,000 and you buy a $10,000 car. The car will be 3.3% of your net worth. You can re purchase that car 33 times over. I like that feeling. You can apply this to anything...furniture, college tuition, clothing, vacation spending. Lets briefly look at vacation spending. If you have a net worth of $10,000 because you owe $20,000 to your college loans and auto loan  and you also have $30,000 in retirement savings, then a $5,000 vacation is 50% of your net worth. Think about it 1/2 of your total financial worth spent on vacation!

You can also play the percentage game in relation to income. How much do you spend on vacation per year in relation to your annual income? I try to keep my vacation to 5% or less of income. As time goes on, this should be a decreasing % of net worth. Imagine the power of your net worth growing faster than all of your budget items. This will undoubtedly happen if you invest well and continue to make savings your #1 budget itme. If you save 30% of your income and spend 5% on your vacations, then over time, your vacations will be smaller and smaller portions of your net worth. Eventually your net worth will grow much more on its own than you spend on vacation. When your net worth grows more on its own than you spend on all of your expenses, then you are officially able to retire...as you won't need to produce earned income any longer. Your investment income will pay the way. And, to bring it back to the car purchase...the day of arriving at retirement is brought closer the less you spend on your vehicles and the more you spend on savings.

How I made money with CSCO this year

Well, throughout 2011 I told my friends to buy CSCO. I'm not sure if they took action, but I'll show you my transaction history over the past 12 months with CSCO. I bought on Nov 12, 2011 at $20.07. I then sold on January 12,2011 for $21.07. The gain was 4.7% in 2 months, and I was happy. Then in February the stock price fell again, so I bought at 19.11, lower than my last buy in. I was happy again. However, CSCO kept going down, and I didn't understand why. The company was profitable and #1 in the industry. So, I bought more a few weeks later at 18.40 and told my friends to buy. They were probably glad they didn't because by march 17 the price was at 17.14. Still thinking it was a good deal,  I did what any value investor would do..I bought more and told my friends to buy. Well, June brought even lower prices of $15.22 and bought at that point too. The stock price went even went lower but I held back as I was at my capacity for any one stock at the time. However, as I imagined, CSCO came back. On Nov 10, I sold at 18.75 for a 8.9% gain plus a collection of about 1% in dividends throughout the year. In the end, I made a 9.8% return with a total hold time of 8 months from the first buy and only 4 months from the last buy. The gain on that last trade was 23%. I was hoping for a 10% gain overall, so I am happy with how it transpired. I was hoping to gain the 10%  in 4 months and not 8, but to do it in less than 12 months is good in my books. I'll be keeping my eye out for another CSCO crash. I'll let you know.

RIG (Transocean) buy for Nov 21,2011

RIG (Transocean) is by far my stock pick for Nov 21, 2011. Firstly, The Ex-dividend date for RIG is Nov 22. The dividend yield for the price at the close of Friday is %6.66. The upcomingdividend payment will offer a 1.67% return. The stock is at a 52 week low of $47.47 with a 52 week high of $85.98. This is a big profitable company that provides oil rigs. They were involved with the RIG that exploded last summer with BP. This incident has provided a lot of swinging in this trustworthy stock that has been fun to trade over and over. I am long this position.