Book Review – The Little Book of Value Investing by Chris Browne

For those of you who have read some of my previous comments on investing, you know that I have a “fun money” fund which I use to invest in individual stocks. You also know that, for the most part, I haven’t been able to keep up with my simple Index fund investments in my IRAs and 401Ks. Imagine that, a stock picker who doesn’t do as well as the Index, who would have thought?

However, the purpose of this “fun money” is for me to learn about investing, stock picking, and what works (and what doesn’t). To do this, I’ve taken to doing some reading, looking at articles on the net, and planning my future purchases.  In that area, I took the opportunity to review the Little Book of Value Investing by Chris Browne. The book seeks to go through the concepts for value investing in a short amount of text, but still provide sufficient “value.”

The book starts off with a couple of chapters going over the basics of value investing, basically discussing the concept of “intrinsic value” for a stock (what it is truly worth, without hype or negative news). It provides some basic history of the concept, based on Benjamin Graham’s initial work, and the author displays his “credentials” with it, due to his father’s company being the firm that did most of Graham’s trading (they were located in the same building).

The book then dives into the various places to seek value stocks (large cap, small cap, international, etc.) The author discusses his early work with his father’s firm, where he searched through documents the old fashion way, before the advent of computers. This enabled them to find good bargains, because there weren’t many firms willing to do the deep research necessary to find the bargains. For example, back in the day, the firm was able to find a large number of companies selling for less than the cash the company had available!

Today, with modern computers and data, it isn’t as easy to find bargains like that, but it also is easier to get a list of companies with some of the criteria for value, and then do additional research to find the one you want. The book’s final chapters go through the process of how to do that:

  1. Create list of Candidate stocks
    • Price to book value below 2/3
    • Price to earnings
    • Price to net current assets
    • Buying of shares by insiders
    • Visit competitors data
  1. Determine why are they cheap
    • Too much debt?
    • Didn’t make earnings estimate?
    • Cyclical?
    • Competition?
    • Obsolescence?
  1. Review the Balance Sheet (especially trend over last 5-10 years)
    • Current assets 2X current liabilities
    • Long term assets vs. liabilities – is ratio increasing over time?
    • Debt-to-equity ratio: less than 1 (or company being funded by debt) – compare with other companies in the industry
  1. Review the income statement (again looking at trends
    • Revenue growth
    • Expense growth in line or less than revenue growth?
    • Gross profit percentage (revenue – expenses / revenue). Is it growing?
    • Earnings per share, and diluted earnings per share (which take into account stock options). Trend?
    • Look at trends over last 5-10 years. Here is where you are going to find how the company is doing
    • Return on capital ratio & trend (should be rising)
    • Net profit margin & trend (should be rising)
  1. Research other factors of company (products & their outlook, Can it be as profitable as it used to be, One time expense that affected price, unprofitable operations that can be shed, competitors, etc.)

Finally, the book goes into one of the key parts of value investing – the fact that it is a Marathon, not a sprint. To invest for value means you are going to purchase a stock that is worth more than it is currently selling for – and then wait for the market to realize that fact. It may take a month, a year, or several years. To be a value investor is to be  a patient investor. If you don’t have the patience, then maybe this strategy is not for you.


Of course, that is something that I’m struggling with.


Mr. 39 Months

Financial Update – Disaster File

If you remember back at the beginning of the month, I realized that I had to update our personal files, or our “Disaster Files.” This was the files showing investments, wills, titles, etc. Often folks do this once every so often (many times after a family member passes away) and then let it lie fallow till the next “emergency.” Yep, I was one of those folks, having not touched it since 2013. In my previous post I attached a couple of helpful documents that I hope folks find useful.

Well, I dove into it during the month, and so far, here is what I’ve gotten done:

No Description
1 Update Master List from 2013
2 Send Master list to Mrs. 39 Months
3 Price out updating wills
4 Redo filing cabinet with Master List & Disaster file #1
5 Household budget folder (budget goals, income statement, balance sheet, income/expense forecasts)
6 Housing Information (Title, insurance, receipts for work, property taxes)
7 Online passwords
8 Location of keys to safe deposit box – Mrs. 39 Months drawer
9 Credit records: Resolution of past debts (auto, home)
10 Home Insurance Policy
11 Net Worth’s 2009 to present
12 Annual updates for Jan 1, 2017 into investments
13 Investments (list of accounts, goal planning, annual balance sheet)
14 Taxes: Tax records for previous year, current year documents
15 Personal background info (Education, personal history, resume)
16 Credit: Resolution papers of past debts, credit card names, numbers & 1-800 number
17 Health insurance (Booklet from work, health history, medications, etc.)
18 Life Insurance (Insurance policies, etc.)
19 Safe Deposit: Title to Mrs. 39 Months’s auto, DD214, NY and KY marriage certificate, letter of last instructions, copy of will, personal property inventory, negatives of personal property, passports, old passports, Mrs. 39 Months’s birth certificate, Mr. 39 Months’s birth certificate, Mr. 39 Months’s SS card)

So what do I have left?

1 Letter of Last Instructions
2 latest credit report
3 Updated list of personal property
4 Pictures of personal property
5 Guarantees & warranties (appliances, cars, etc.)
6 Auto Info: Insurance coverage, policies, auto registration, repair/maintenance records
7 Instruction letter (where to find everything, computer passwords, etc.)
8 Setup dates for regular updates to the files (so I never have to do this again)


Some of these I should be able to knock off. The pictures of personal property actually might end up being a video (room by room) and description. Often these are better than just pictures.

The big killer, for me and for most people, is the Letter of Last Instruction. Let’s face it, its not a fun document, as it lists what happens when you die (not “if you die” but when – we haven’t discovered immortality yet). I’ve done some research on things to include:

  • Instructions about the funeral, memorial service, and preferred disposition of the body. Your loved one should also include any specific instructions for clergy and funeral directors.
  • Location of his or her will.
  • Names of friends and relatives who should be informed of the death.
  • Location of all important personal documents (birth or baptismal certificate, Social Security card, marriage or divorce papers, naturalization and citizenship papers, discharge papers from the armed services).
  • Location of membership certificates to any lodges or fraternal organizations that provide death or cemetery benefits.
  • Information about outstanding debts.
  • Location of safe deposit boxes and keys.
  • List and location of insurance policies. This should include the name of the insured, policy number, amount, company, and beneficiary for each life, health, accident, and burial insurance policy.
  • List of pension systems that may provide death benefits; e.g, Social Security, Veterans Affairs, railroad retirement.
  • List and locatoin of all bank accounts (checking and savings), stocks, bonds, real estate, and other major property (personal and business).
  • List of the names of various advisors, their addresses, and telephone numbers (lawyer, executor of the estate, life insurance agent, accountant, investment counselor).
  • Instructions concerning business operations, if any.
  • An explanation of actions taken in his or her will, such as disinheritances.
  • Personal information: full name, address and length of residence there; Social Security number; date and place of birth; father’s name and mother’s maiden name; marital status; names and addresses of children, spouse, and other members of the immediate family; schools or colleges attended and degrees and honors received; name of employer and position held.

I will probably start working on this in August, with the hope of having it done by the end of September. Wish me luck!


Mr. 39 months.






Book Review – The Millionaire Next Door by Tom Stanley and William Danko

I have a confession to make. I love this book. I really love this book. I have it in soft cover, hardback, and as a book-on-CD. I always go back and re-read/re-listen to it once a year. If I would say I aspire to anything, it would be a representative of the people is this wonderful tome. I think everyone should read it, and the world would be a better place if more people followed the lessons in it, instead of just consuming like crazy.

I picked the softcover of this up in 1999 on the remainder shelf of a Border’s bookstore. Read through it while Mrs. 39 months and I enjoy coffee at their snack area. Couldn’t stop reading it, and eventually bought it before we left. It truly was the “kick in the pants” that I needed to start getting serious about living frugally and saving money. Before that, I was only doing the minimal (only put the matching $ in my 401K, no IRA, etc.). After going through this, my savings went into overdrive (see my April 2017 post “A little context” for my timeline).

Written in 1996, the book covers information on Millionaires that the two PhD’s have collected over the previous 20 years. When it first came out, the data surprised a tremendous number of people, and dramatically altered how many companies marketed to the wealthy. For the most part, the lessons learned here, and the millionaires (and they’re habits) remain valid today.

The typical millionaire, according to their research:

  • 57 years old, married, with 3 kids.
  • About 2/3 of those working are self-employed, in “dull-normal” businesses (contractors, pest controllers, rice farmers, etc.)
  • Median household net worth around $1.6M
  • About half have occupied the same house for over 20 years
  • Live below their means (inexpensive suites, drive older cars, etc.)
  • Invest nearly 20 percent of household realized income, on average

The book also gives the reader a “goalpost” where they can see how they measure up. Take your annual realized income, multiply by your age, and divide by 10 (example, $55K a year for you and your wife, 34 years old = $55,000 * 34 / 10 = your net worth should be $187,000 or more. To be considered “wealthy” you should be twice that (i.e. $374,000)

The book then breaks down the seven factors that they believe contribute to individuals being able to accumulate over a million dollars in their lifetimes. Their chapters go into details on each of these seven factors.

  1. They live well below their means (Frugal, Frugal, Frugal!)
  2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth
  3. The believe that financial independence is more important than displaying high social status (they don’t try to keep up with the joneses)
  4. Their parents did not provide them economic outpatient care (i.e. no money from Mom & Dad, or major inheritance)
  5. Their adult children are economically self-sufficient
  6. They are proficient in targeting market opportunities
  7. The chose the right occupation

The biggest takeaway I got from the book was the importance of being frugal. The book classifies it in football terms. If someone makes a lot of money at their job, they play good “offense”. But if they spend it all, they are playing lousy “defense.” As it is often said in sports, defense wins championships – or frugality makes you a Millionaire Next Door.

I would rate it 5 out of 5, because I just love this book.



Real Estate  – starting to do further research

I have always been interested in real estate, and real estate investing. I’ve got a ton of books on houses, remodeling, layouts, etc. As an engineer, I have been fascinated by calculating costs (and remodeling costs), drawing things up, and imagining how it could be built or altered.

I’ve “puttered” some around my house, built a deck (twice), did a bathroom remodel and a kitchen remodel, and also did some work with Habitat for Humanity. Still, I have the “bug” and have it bad. Plenty of time spent online and YouTube looking at videos and shows. Probably could have used the time more productively.

Unfortunately, the one chance I’ve had in my life to really do a remodel, back in 2006, was when we added a second story to our house (made our rancher a cape cod). We worked with an architect, hired a builder, set up our funding, and got everything ready. Then my job came to me and asked me to do them a big favor, and help run a warehouse out in KY for 3-4 months because it was having trouble. I did it, coming back every 2-3 weeks for the weekend. I got to see the work in increments, instead of being able to “live it” every day. I still regret this – but I was a dedicated employee, working for a good company. Ah well.

Now we are closing in on financial independence, and we have a sufficient amount of funds to the side that I could consider getting involved in real estate. However, as an engineer, I now have to start digging into the numbers again, and do my reading and research. I know, I’m boring at times, but I am a planner, so that is the way it goes.

Luckily for me, there is a local real estate club in my area, one that meets regularly and has spin off groups for each county in my state, and for new investors. I took the opportunity to attend their monthly main event at a local hotel last night, and see what they had to offer. They let you attend the first one for free, but then charge non-members a fee. Membership runs around $150/yr.

The group has a “meet and greet” from 6pm – 7pm, where there are snacks, vendors (insurance, banks, contractors, etc.) and an opportunity to talk to similar folks. At 7pm they do announcements (upcoming events, things members get like discounts, folks you can talk to, etc.) then the speaker goes for another 45 minutes. Depending on the speaker, they can be quite informative.

I think it’s a potential source of real estate knowledge. I will probably go on a month-to-month basis to see if its worthwhile. Depending on that, I’ll sink in for an annual membership. My timeline is to look at a potential flip in 2018, so we will see how the market goes.


How are your real estate experiences going?

Mr. 39 months.


Well, my investments, like many folks, have nose-dived a bit since the start of the month. While the S&P 500, and most of my index funds have stayed even, my dividend portfolios are down about 2% so far. Remember, this is my “fun money” accounts where I tried to purchase bonds, stocks and REITs to generate maximum dividends. It seems like I have been shoveling money into these all year, only to have the market eat the money up by the time the month ends.

Now granted, 50% of these accounts are in bonds, and the rising interest rate environment has not done me a lot of favors here. In addition, the rising interest rates and the retail meltdown have punished REITs in a major way (or at least some REITs). Still, even though I have some explanation, it still makes me unhappy.

Yet I intend to keep with the plan I laid out, investing in dividend paying assets, and using my monthly funds and quarterly dividends to reinvest in the assets necessary to reach a 50% bonds/25% REITs/25% dividend stocks setup.

That is why I chose the title, stick-to-it-ism. There are always times in your push towards financial independence when your direction appears to be going nowhere (or potentially backward). Folks in 2007 and 2008 were double-paying their mortgage down on their house, only to see its value crash down and lose all the value that they had paid into it. Many home prices are only now getting back to where they were, ten years later. Some aren’t even there.

Still, by paying down the mortgage, getting rid of any remaining debt, and continuing to save, most FIRE folks find themselves in better shape now than they were before the crash nine years ago. That is because the concepts and principles we follow are timeless, and in the long run, they are bound to place us in a better position. We just have to have the “stick-to-it attitude” that lets us keep working on it, even during the times it doesn’t seem to help.

So how about you? What have you done to “stay on target” as you move towards independence?


Mr. 39 months

Book review – The Total Money Makeover by Dave Ramsey

This classic book, written in 2003 and then updated after the crash of 2008/2009, often gets disrespected amongst the FIRE community. Many note that the math doesn’t exactly add up on his investment advice, or that his debt snowball isn’t the most efficient way to get rid of debt (see below). My opinion is that the book isn’t written for folks who are in the midst of following the FIRE philosophy; instead, it is written for those who haven’t embraced it yet, and it shows them why many of the tenants we all believe in (eliminate debt, invest, budget, plan, etc.) will help pull folks out of a money spiral and set them on the path to a debt-free, happy life.

Throughout the book are testimonials and stories of various people who started out in bad shape, but are using Dave’s steps to build a better life. Chances are you will see someone who is similar in one of them.

The first chapter of the book details Dave’s personal journey. Many folks don’t know that he and his family went bankrupt about 30 years ago. While he doesn’t go into too many details, it appears he got overextended and couldn’t pay his bills. The timing of it (late 80’s) makes me think it was due to real estate investing – changes in the laws in the late 80’s killed a lot of real estate investors. He does take responsibility for screwing it all up, and having to dig himself out and learn some painful lessons. He relates that he felt he had let his wife and family down, and wasn’t doing his job as a provider.

The next four chapters, he uses to explode a lot of money “myths,” and many of them have been shared on the FIRE blogs for years:

  • College graduates graduating not just with student loan, but with credit card debt
  • Used cars paid for in cash vs. new cars paid with a car loan
  • Get rich quick schemes
  • Cash value life insurance vs Term
  • Keeping up with the Joneses

He then spends the next seven chapters going through his 7-point plan for digging yourself out of the hole and creating a successful financial life.

  1. Create a $1,000 emergency fund. Folks often get into trouble because they don’t have ready cash to deal with life’s emergencys (dryer breaks, car repair, etc.). Dave says do whatever you need to (sell items, 2nd job, etc.) and build up a $1,000 emergency fund. If you have to use it for an emergency (sale at the shoe store is not an emergency) then stop subsequent steps till you rebuild the emergency fund
  2. Get your credit paid off
    1. Cut up all your credit cards (or if you have to have one, freeze it in a block of ice so it will take a while to get it).
    2. Now that you won’t be adding to your debts, figure out all your debt, and rank order them in quantity owed, from small to large. Example would be $1,800 in credit cards, $9,000 for car loan, $30,000 in student loan debt, and $150,000 for home.
    3. Figure out what the minimal payments are for all of them, and make sure you pay the minimum for all of them regularly from now on. If necessary, sell items (car, exercise equipment, etc.) or take a 2nd job to help with this
    4. Now take any excess money and put all of it to paying down your smallest bill. Not the one with the highest interest rate, but the smallest amount owed. Note: this is where many FIRE folks have issue with Dave. If you look at the numbers, the smarter play is to pay down the one with the highest interest rate. Psychologically, Dave wants people to get early wins, so they pay off the smaller ones first, and start eliminating debt accounts as soon as possible.
    5. Once you get rid of a debt account (i.e. the first credit card) take that money and immediately apply it to the next debt, along with that debt’s minimum payment. This starts Dave’s “Debt Snowball” where you keep feeding the money into each account as you close them up. This accelerates over time and gets the debt paid off. Again, this has shown to be successful with normal folks, though FIRE people may not choose to follow, because they are already paying off debts.
  3. Finish the emergency Fund. As you get your debts paid off, you eventually may end up with only the home loan left. Rather than going whole hog paying that down, Dave suggests you build your emergency fund up higher with the money you used to pay down your credit card, car and other loan payments. He typically recommends 3-6 months in the fund, in something that is fairly easy to liquidate (savings account, short term notes/bonds, etc.)
  4. Maximize retirement spending. Now with debt eliminated (except for home) and emergency fund fully funded, you want to maximize any retirement spending you have. Max out the 401K, and any IRA you can (in US). Dave suggestion, like so many others, is a minimum of 15 percent should go into saving for retirement, and he does emphasize  Index funds. Again, many FIRE folks are saving significantly more than that (30%, 45%, 55%, etc.). Again, the book is written more for folks just starting on the journey.
  5. College funding for the kids. An important item of note here. Make sure you are fully funding your own retirement before you begin saving for kid’s college. If worse comes to worse, the kids can pay for their own, but you need to save for retirement now. Dave isn’t a fan of student loans, he wants folks to pay cash for college, and/or have the kids work jobs to pay for it. He hates having folks graduate with a mountain of debt hanging over their heads
  6. Pay off the home mortgage: If everything else is funded sufficiently, then put extra money towards the home mortgage to pay that off and become truly debt free. One thing most FIRE folks can agree with Dave Ramsey on is that, when you are debt free, it is a truly liberating experience! It also dramatically increases your chances of retiring early.
  7. Build wealth like crazy: Here is the final step on the journey, and the one most in line with FIRE folks. If you have no debt, are fully funding and investing for retirement, then push additional funds into investments, build them up, and enjoy life. Which is what many of us are either doing or planning to do.

While I don’t think this book is good for folks who are already on their financial independence journey, I do believe its good for folks who are just starting, or as a gift from one of us to explain to others how to get started on their own move towards independence.

I would rate it 3.5 out of 5, mostly because it doesn’t apply as much to FIRE folks.



Six Month review of my investment strategy

I typically look at my investments every 3 months to see how they are doing. I also take the opportunity at the six-month point to rebalance if things have gotten way out of whack. This lets me get a good idea of how I am progressing and make adjustments. I don’t like to rebalance more than that – I think it would drive you nuts to do it more frequently.

If you remember my investment strategy, Mrs. 39 months and I each have an IRA (money we transferred from our company 401Ks when we left them) and a Roth IRA (which we’ve been investing in fairly regularly since 2001). For each of these, we have it split like this:

  • Bonds: 30% (was 20%, but we bumped it up at the start of 2017, as we are closing in on retirement)
  • S&P500 Index: 17.5%
  •  REIT Index: 17.5%
  • International Index : 17.5%
  • US small cap: 17.5%

For these, we are up about 6.6% total (capital gains + dividends), with International, Small Cap and S&P500 leading the way. REITs and bonds didn’t do very well (rising interest rates, anyone?). I will need to do a little rebalancing, but not much.

For my 401K and deferred account, I don’t have a REIT option, so it’s split up as

  • Bonds: 30%
  • S&P500 Index: 23.3%
  • International Index : 23.3%
  • US small cap: 23.3%

For these, we are up about 9.2% total (capital gains + dividends), with International, Small Cap and S&P500 leading the way. With only bonds not doing well, the 401K did better. However, I will also have to do some rebalancing.

Finally, I have two brokerage accounts that I have setup with Bond index funds and my own stock and REIT picks. I tried to set them up to maximize dividends, as an attempt to research how I might invest to get the most passive income out (see earlier post on this).

  • Pop’s Inherited IRA (50% bonds/25% stocks/25% REITs): 3.6% gain, mostly from dividends
  • Personal investments (41% REITs/29% bonds/30% stocks): 2.6% gain, again mostly from dividends

I put in $1,376 into personal investments each month, and I try to use that to get it to the 50/25/25 level of the inherited IRA. Still working to get there.

For rebalancing purposes, the mutual fund and 401K companies (Vanguard, TRowePrice) make it fairly easy to sell off funds and reinvest in others. I will just sell enough and buy enough to get somewhat close to the split that I want.

Overall, I am fairly happy with what I’ve got so far. I’m coming in around 5.6% gain at the mid-year point, so baring any major disasters, it should be a good year!

I hope your midway points are equally good!


Mr. 39 Months


Updated personal files/disaster files

It is halfway through the year, and one of the things I wanted to work on was my personal files, or as ESI money often refers to them as, my Disaster files. We all keep records, either online or in paper form in a file cabinet. The key is to keep them organized in such a way that you (or your significant other) can quickly get the information that you need.

Typically, folks deal with these things when they first get the “setting up” bug, then let them lie for a significant period of time (sometimes years). I am very guilty of this, and the last time I updated them was back in 2013.

So as part of my mid-year review (and with the opportunity for a 4-day weekend for July 4th in the US), I took the time to dig in and see what I needed to work on. For everyone’s help, I’ve attached two pdf’s to this that I used when I was first setting up back in the 90s.

  • Something written for military personnel to show a file setup situation, by Lt. Cmdr. T. Connors
  • Something provided by USAA (the military insurance Co) for organizing records.

I hope they help everyone.

After going through, here were the deficiencies/tasks that I see I need to work on in the next 30 days to get myself back up to speed.

No Description
1 Update Master List from 2013
2 Send Master list to Mrs. 39 months
3 Price out updating wills – don’t need to update, no change from 2003
4 Redo filing cabinet with Master List & Disaster file #1
5 Letter of Last Instructions
6 Household budget folder (budget goals, income statement, balance sheet, income/expense forecasts)
7 Housing Information (Title, insurance, receipts for work, property taxes)
8 Online passwords
9 Location of keys to safe deposit box
10 Credit records: Resolution of past debts (auto, home)
11 latest credit report
12 Home Insurance Policy
13 Net Worth’s 2009 to present
14 Annual updates for Jan 1, 2017 into investments
15 Updated list of personal property
16 Pictures of personal property
17 Investments (list of accounts, goal planning, annual balance sheet)
18 Taxes: Tax records for previous year, current year documents
19 Guarantees & warranties (appliances, cars, etc.)
20 Personal background info (Education, personal history, resume)
21 Credit: Resolution papers of past debts, credit card names, numbers & 1-800 number
22 Auto Info: Insurance coverage, policies, auto registration, repair/maintenance records
23 Health insurance (Booklet from work, health history, medications, etc.)
24 Life Insurance (Insurance policies, etc.)
25 Safe Deposit: Title to auto, DD214, marriage certificate, letter of last instructions, copy of will, personal property inventory, zip disk with photos of personal property, passport)
26 Instruction letter (where to find everything, computer passwords, etc.)
27 Setup dates for regular updates to the files (so I never have to do this again)

Ouch. I have a lot of work ahead of me. Still, it will be good to have this done, especially as I progress towards financial independence.

Good luck with your mundane tasks.

Setting up your personal record file

Master List

Mr. 39 months