Brave enough to fail

I can’t do math (specifically algebra). Have I told you that lately? As sure as I am that I have blue eyes, I know I can’t do math. So I was understandably stressed while preparing to take the first exam for the Canadian Securities Course. Even one of the easier formulas like this:

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Made my brain look like that:

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But I can do words and study and memory. I decided to tackle the formulas a different way. Instead of the mathematical shorthand seen above, I broke it down into words I could study and memorize:

Yield to maturity equals interest income plus or minus price change, divided by, face value plus price divided by two.

Once I wrote it out enough times I could add a little shorthand of my own:

YTM = interest income +/- price change, divided by, FV + price divided by 2.

I was getting somewhere.

But still – if there were too many math questions I was in for a hard time. Seven months and it came down to this. I needed at least 60% to pass and while many people were cheering me on, I never take anything for granted and my concern was real (there is nothing false about my modesty). I was just going to have to suck it up and ride the fall. I went into the exam prepared to be brave enough to fail.

The time came, the proctor handed me the exam booklet and I took a look. There, of the 100 questions, only 10 even had numbers in them. I only used one formula I had memorized and there was one calculation I could do IN MY HEAD.

Results were swift – three days later I emitted an “Eep!” when I checked online and found I had passed. I didn’t ace it but I didn’t squeak by either.  I did something that scared me, did it successfully and lived to tell the tale. If there’s hope for me, there’s hope for just about anyone.

Halfway there.

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Politics, markets & other animal spirits

I haven’t been on here in a while because I just don’t know what to say. I haven’t known what to say since the American election on Nov. 8.** As soon as the winner was officially declared people started asking me questions about what to do with their money. But the market response was unexpected, to say the least. (Great article here about experts and economic uncertainty.)

A few months ago when Brexit hit, stocks tumbled a bit and I went shopping. I was expecting the same to happen after Nov. 8, but instead, aside from an initial stumble by the overseas markets, they started climbing and stayed strong for days. (The Dow Jones set an all-time high on Nov. 9.)

It seems people are hoping that Trump will make good on all his economic promises, and that we’re at the start of a growth period. I’m also guessing that after such a long, drawn out affair, everyone was happy a decision was finally made and we could get on with it.

Yes, I’m guessing. As is everyone who tries to anticipate the markets, don’t let them fool ya. In a recent seminar, Larry Berman revealed that a 10-year analysis of his predictions showed he was right about 62% of the time. (Love his honesty.)

There’s more to come, with other elections imminent across Europe. It seems nationalism and protectionism are in fashion, again.  (Can I just say that Coco Chanel would be my hero if she hadn’t shacked up with a Nazi? Sigh.) Here in Canada there’s the old joke that every time the US sneezes we catch a cold, so we’re right to pay attention to our neighbour’s business.

It’s going to be an interesting four years.

** I don’t know what to say about money, I mean. I have a lot to say about the election, and here’s a fun clip from Saturday Night Live.

 

In the news

Here’s a quick roundup of a few interesting things.

US Banks Finally Getting Sued for the Great Recession Crash

Remember back in 2008/2009 when the US banks lent people money to buy homes they couldn’t afford, then raised interest rates and foreclosed? Miami nearly went bankrupt — if people lose their homes they’re not paying property taxes. But no one went to jail because for years before the crisis the banks and other financial institutions changed the rules in their favour (deregulation). Now Miami is trying to sue the banks. This will be interesting. Read all about it in the Washington Post

Canadian Banks Overcharging Customers

Meanwhile here in Canada the big banks are turning themselves in, admitting they overcharge customers and paying them back. Here’s the key point in this article – it is just too hard for average people to figure out what’s going on with their money. Most of our financial information comes from people trying to sell us something, which makes unbiased decisions much more difficult. Read all about it on CBC

Hillary & Donald: It’s Almost Over

Finally, is anyone else out there waiting to see if election anxiety affects the markets? When people get nervous they start pulling their money out by selling off their stocks, which sends prices lower. That’s what I love about the whole financial and economic scene – it’s not about numbers, it’s about people, and whether they have hope or fear for the future. I won’t direct you to any article about the American election though; I think we’ve all had enough over the past 18 months.

Life, math and chapters in between

There I was, making slow but steady progress, then wham! Life happened, as it does. My last post was about the Breakfast Club Retro Dance, which I’m happy to say was a success. More than 100 people came out and we raised $3300, so in two years the event has raised $7100 for the Ottawa School Breakfast Program. That’s a whole lot of tummys we’re filling, many futures we’re helping.

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Delivering the cheque to Alison Sheepway at the Ottawa Network for Education

Back to the Canadian Securities Course. For people who are working full time while studying it does usually take an entire year to complete. Over the summer I got bogged down by Chapter 7 – Fixed-Income Securities: Pricing and Trading. Or more specifically, by the mathematical formulas in the chapter. I took the math tutorial and thought I had it figured out, then took the online quiz, which explained everything differently, and just got confused. Math panic swelled up in my gut.

Then Adult Me kicked in. (I didn’t even know my brain had an Adult Me function.) I realized that if I were to use this information in daily practice, I could always pull out the book again to refer back to the formulas. This was wonderful, especially since I still have math nightmares. (Seriously. It’s a day before the final exam, I’ve spent the entire year doing nothing but English and history, and if I don’t get my math credit I don’t graduate. Shudder.)

So I moved on, knowing that I wasn’t going to do well on one particular part and that was ok. I sped through Chapter 8 – Equity Securities: Common and Preferred Shares and Chapter 9 – Equity Securities: Equity Transactions, both in one weekend. I took a little more time with Chapter 10 – Derivatives and Chapter 11 – Financing and Listing Securities.

Now I’m on Chapter 12 – Corporations and their Financial Statements. Apparently all the terms I learned in Grade 13 Accounting have changed. (The bastards! How dare they!) Once I’m done, I’ll study Chapters 1-12 and sign up for the first exam.

Yikes.

Money in a sock drawer

A friend of mine sent me a link to a CBC story about CIBC selling negative-rate bonds for the first time in Canadian history. Negative-rate bonds means they are guaranteed to lose money, and people are buying a lot of them – CIBC raised almost $1.8 billion. Crazy, eh?

Here’s how a negative-rate bond works. When you buy a bond, you’re basically loaning money to the business or government, and they promise to pay you the full value at a certain time in the future. To make you more interested in giving them your money, they give you interest payments along the way. Really, it’s a big IOU and you’re the loan shark.

When the bond has a negative rate, you’re giving say $100 to the business/government and they promise to pay you $95 back. Why would you do it? Because you think the world is going to hell in a hurry and this may be your best bet. At least you’ll have $95.

Like the loan shark you are, if you’re not paid back in time you can take the assets they put up as collateral, they can raise cash by charging their customers more or they can call in their own debts to help them pay you back (after you break their knees, of course). What assets do Canadian banks have? Mortgages. Ah, the plot thickens!

Canadian banks are strong and strongly regulated. The government wouldn’t let them get into the pissing contest between the US and the UK when those countries were deregulating themselves into a tizzy trying to create new ways of making money that eventually led to the 2008 economic collapse. So we trust our banks. When you’re scared, you turn to people and institutions you trust.

That’s why people are handing money over knowing they’ll get less back in the future. They’re scared.

Emotions are running high right now. Here in Canada business investment is slow and the Fort McMurray wildfires took a chunk out of our economic growth when oil production stopped, according to the Conference Board of Canada. Horrible things are happening all over (another attack in France; failed coup in Turkey; race relations in the US; the UK second-guessing its Brexit vote). C’mon, Donald Trump is a presidential candidate fer cryin’ out loud.

Fear, greed and hope. That’s what runs the economy.

My friend wants to keep his money tucked away in his sock drawer. Can’t say I blame him. (Of course there’s inflation, but that’s a post for another day.)

Speaking in tongues, riddles and codes

Any group that has specialized knowledge or works in a specific industry tends to have its own language. That language makes it easier for group insiders to communicate, and by making it harder for outsiders to understand, it also helps secure the group’s status as experts.

What does that mean? It means that as I’m working my way through the Canadian Securities Course materials, half the time I don’t know what the hell they’re talking about. The financial industry is in dreadful need of a plain language makeover.

Here’s an example. The book says the national debt is “the sum of past deficits minus the sum of past surpluses.” Seriously, was that necessary? No wonder financial literacy is so low, with language like that! (My version: the national debt is how much Canada owes.)

Chapter 4: Economic Principles was not as much fun as I’d hoped. (Shocking, I know.) Finally, after three chapters on rules and regulations, we were getting to the good stuff. Interest rates, inflation rates, business cycles, oh my! I could see how it all affected actual people.

High interest rates are good for savers but make it more expensive to borrow money for a couple buying a home or a company expanding its manufacturing plant. High inflation is bad for people on fixed income like pensions, like the little old lady I’m going to be one day, because rising prices means your money doesn’t go as far and you can’t buy as much. Business cycles ebb and flow, affecting labour relations and unemployment – and who hasn’t had to hit the pavement to look for a job at some point.

Then I took the quizzes – and spent most of my time trying to figure out what the questions were asking, never mind what the answers could be!

This is going to take some work. I’m onto you, financial industry, and I will learn your secrets. I refuse to be an outsider with my own money. I’m coming for you – and this time it’s personal.

Hitting the regulations wall

I hit the wall in Chapter 3: the Canadian Regulatory Environment. Twenty-eight pages of tedium, plus online exercises. I’m telling myself, you gotta get through this to get to the fun stuff in Chapter 4: Economic Principles. (Yes, by comparison, it is the fun stuff. At least we’ll get back to talking about money.)

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Chapter 1: The Capital Market managed to make money seem like a force for good. Of course it can be, but it’s really just a thing. The people behind it are what matter.

Chapter 2: The Canadian Securities Industry was a little easier, despite multiple definitions of underwriting. (Anyone else think of underwire bras? No? Just me then.)

Ok, one more push to finish. I’m trying to convince myself this is sexy stuff. Arbitration sounds fancy. Examples of unethical practices should be juicy. Trying really hard not to think of Paul Giamatti in his Billions bondage gear. I may need to watch Richard Gere in Pretty Woman instead.

Highlights of what I’ve learned so far:

  • Capital is just money that’s available so you can do stuff with it, like invest.
    Having more capital (money) means people can invest, businesses can increase productivity and governments can get more stuff done. So capital is good.
  • Lots of foreign countries invest in Canada because we’re seen as safe and secure. (Peace, order and good government baby!)
  • There are seven different stock exchanges in Canada, not just the TSX.
  • The big six banks run >90% of the country’s banking assets but there are oodles more banks (yes, oodles. Hey you’re not the one being quizzed. Believe me, I’m saving you.).
  • There are entirely too many definitions of underwriting.