Passive Income Series - Part V - Selling Photos Online to Make Money

ShutterStock is a Revolution. If some years back you were a good photographer, a really good one, you still had no way to make money by reaching a wide audience other than doing all the dirty sales work yourself. Technology prevails! Technology not only lets us have an easy access to such enormous media content online, but also lets the creators showcase and even turn their talent into aShutterStock is amazing. It allows, the creators (you) to upload Images/Video Footage and sells them to the huge customer base they already have, which consists of various businesses or individuals who are looking for original artwork to use in their media productions or websites.
living. Now this is not even the part that excites me the most. The part that excites me is about separating out the creators of the content with the ones who take care of showcasing and selling them. Well, you still have to sell for yourself. But today technology makes it possible for a photographer or a graphics designer to just focus on what they like the most and leave the part that makes them uncomfortable (selling or marketing) to technology.

How do you make money?

Customers of ShutterStock are subscribers of the content. The way ShutterStock works is quite different from others as its primary way of selling content is not through individual downloads but through subscriptions. So customers have monthly/yearly subscriptions and they can download unlimited images under those subscriptions. Each time they download your uploaded image, you make money! Image payout rates range from $0.25 to $28.00 USD per download. Footage contributors earn a 30% commission each time a clip is purchased. Because the customers don't have to choose too carefully before downloading due to this model, the number of downloads are far higher than other approaches. Individual downloads are also available where sales revenue is shared with the creator, YOU.

Is ShutterStock really Free? 

Absolutely! All you need to do is Sign Up and upload your valid identity proof. Everything is very smooth. They monitor the content very strictly for plagiarism and you have to get the content approved before it makes it to the galleries. It might sound a bit restrictive but if you think about it, it's indeed a good thing. Restrictions help keeping the site clean. And if you are a serious Contributor, your content will get approved and stand a better chance of getting notices and ultimately SOLD.

Anything else you need to know about ShutterStock?

The initial Sign Up process is smooth. But ID approval takes around 48 hours. Further, for each image you upload it will have to go through the approval process. It might become irritating sometimes, as you want your recently clicked million dollar snapshot to be up there and selling immediately. However, a little patience will go a long way as once approved the photo can sell for as long as you want and as long as its up there. 

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How to Organize Important Documents on a Computer

Organizing computer files can be a daunting task, and with more stuff like pictures, movies, songs, books and even work files being stored in soft format. It is very important to de-clutter the PC, like it is to de-clutter your desk. To begin with, you need to at least organize all the important documents into folders.

Which documents are important?

Firstly, having soft copies of all your certificates and degrees help a lot when you have to send something through email. It is a one-time effort and can save a lot of duplicate effort if exhaustively done once and for all. So just get all the important certificates and degrees out of your closet and sit down to scan them all. Nowadays, even the phone camera can scan very good images, so use that if you don’t have a scanner at home.

The other documents are all the things that are unique in nature. There might be some childhood photographs for which we never had any soft copies. It would be a good idea to scan them too before they get damaged. Of course, you also need to save and backup all the pictures from your digital camera regularly.

Steps to Organize Important Documents

I use a very simple folder structure which I find easy to use. Let’s say the outermost folder is called ‘Docs’, so I create folders for each of the family members. Say we have Mark and Mary in the family, so we’ll have two folders, “Docs/Mark” and “Docs/Mary”. If there are many family members, I suggest using numbers to sort in the order that makes it easy for your use. Example may be “Docs/01 Mark” & “Docs/02 Mary”. This trick works very well as you can name and sort things based on their importance. I recommend using this trick again and again for organizing stuff. It saves a lot of time while searching for the important stuff. An alphabetical sort is not necessarily the best sorting for all purposes and using numbers give us control of sorting. If you want to use DOS for accessing, you might want to consider using “01_” instead of “01 “.

Now inside each family member’s folder, there would be multiple folders like “01_Work”, “02_Academic”, “03_IDs”, “04_Certificates”, “05_Investments”, “06_Tax”, and “07_UnSorted”. This sample list covers most of the things we have important documents for. I normally don’t include all the utility bills in this folder. I have a separate folder structure for utility bills which I arrange year-wise, as that might be shared among family members. The documents structure is for individual’s important documents.

How to Organize Photos and Videos?

The best way that I have found so far is to organize them by year and then by event. There aren't so many events that happen in one year. Maybe we have pictures for 25 events, which still won’t be too much. We might have a folder for a place we visited that year. This may span over months. Organizing it by year at the top level is also very important as it provides completeness. Once, the year is complete you know when you have organized all the photos for that year, and then you just need to incrementally take care of the photos clicked during the new year. The videos could be either given their own folder if there aren't too many of them, else they can be clubbed with the photos folders to give them proper context.

Back Up all the Important Documents

The above structure that we create needs to be saved and updated locally on the machine. However, I strongly recommend you backing up these regularly. You can either buy an external hard disk and make a backup every month, or you can use some of the free cloud based services that are available like DropBox, SugarSync, Microsoft SkyDrive, Google Drive or any other services that are secure and serve the purpose.

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Warren Buffett's Secret of Happiness

I have been watching a lot of Warren Buffett videos lately. He has so much wisdom that one can learn from each sentence he speaks. One of the many qualities that he emphasized a lot was about having no regrets. It is also he believes one of the reason he is so happy doing what he is doing. Often we waste too much time in regretting over the things we did or didn't do. While it is definitely wise to learn from one mistakes but the other bit is to move forward from there. He also talks about how the biggest mistake probably would be of the type omission rather than commission. He suggests that he knew Fannie Mae too well and had decided to invest in it. He just didn't invest in it. He could have made billions of dollars with that single investment ideas. Similarly there are many others. What keeps Warren Buffett happy is the fact that he truly believes that there is only rationality in looking forward, and searching for the other big ideas that he might miss while he wastes time regretting the old ones.

Success is getting what one wants and Happiness is wanting what one gets

A very powerful statement indeed. He attributes his wealth to the nature of his interest. He argues that it is only that his interest happens to be financially rewarding. However, he doesn't take much pleasure by spending the rewards at all. He still lives in the house he bought years ago for a mere USD 31,000. He often jokes with Bill Gates about betting his house for Bill's.

Born during the great depression in 1930, Mr. Buffett is more alive at 82 than most people are at their youth. He is also a big consumer of junk food and coca-cola. If the youth of today are pro-minimalist, Buffett surely seems to be the God of Minimalism. His extremely ordinary looking office floor in Ohama, Nebraska is a simple example of that. Surprisingly, he has no computer on his desk and still reads all the research on printed paper because that's the way he learned to do it.

One great element of Buffett's lifestyle is the fact that he doesn't get affected by other people's opinions. Whether it be a stock idea or the idea of fine dining. Mr. Buffett always insists on doing one's own research before investing into anything, and always have the rationale for making that investment before you actually put money into it. It doesn't matter what other people think. He never falls into doing things that would please others around him. He truly does what he himself is convinced needs to be done.

The most humbling quality that I found in Mr. Buffett was his sense of humor. He sure knows how to make people around him happy. In a session of taking pictures with some fans, he would pose near a lady's ear "whispering a stock idea". Perhaps what makes Warren Buffett the most lovable of the multi-billionaires is his simplicity.

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8 Reasons Not to Become a Trader

Trading has this image of being a very glamorous profession. Sure there are some people who make a lot of money. But it doesn’t come without a cost. Having spent time in a trading desk and lot more hours trading on my own I can tell you that being a trader is overrated. I do have my reasons, 8 of them.

1. Trading is a stressful job. 

As an investor on the buy-side, you are making longer term bets and don’t have to worry about very short term movements. However, as a trader in a bank you have to constantly quote prices and keep predicting small movements in the markets. This can become very stressful as markets are always moving. The margin for error is very less. In a typical swaps desk, a 1 basis point movement can result in thousands of dollars in losses, so you have to be extremely accurate while pricing and entering trades. It can be even more stressful when you are in the negative territory it becomes increasingly tough to get out of it. If you lose 20% of your value, from 100 to 80, you need to make a return of 25% to get back to 100. So, once you are on the losing side of the trade there is automatically a lot of stress of getting back to the winning side. Your bonus and your job depend on it.

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Passive Income Series - Part IV - Income from Google AdSense

Getting a Google AdSense account 

This is the tricky bit. However, if you can write original content and write it for a while on a blog or a website, you would be able to get your account approved. For me I had applied for it really early, back in 2007, when it used to be much easier to get. I didn't use it till 2012, so when I started my first website I was immediately able to use it with the first article itself. But nowadays it requires more patience and persistence to get the Google AdSense account approved.

Content

When creating a blog, it is very important to have a niche. This has two advantages. Firstly, the people start to notice and keep coming back for more content on the same topic of their interest. Secondly, this ranks better with Google. Writing original content and lots of it can be quite challenging especially if you are not from that field. So, I highly recommend starting your blog in an area that interests you a lot. This would mean you can effortlessly produce articles on it. Your knowledge would also keep updating when you get more and more into that interest of yours and then you keep getting these new ideas to write about.

CPC

In Google AdSense, typically you earn money when some user clicks on the ad. How much you earn depends on the advertisement on your website. Some ads earn a lot of money per click, while others earn less. This depends on the content on the website as well as what the user has been searching on his machine. I wouldn't go and optimize the articles to have higher CPC. It doesn't quite work that easily as I can only write about stuff I know and not about stuff I am 'supposed' to write about.

Passive Income

In my first blog, I used to get only 30 cents for 1000 impressions. This is quite a small number. This just becomes 9 dollar/month if you can get 1000 impressions every day. However, the good part is it is completely passive. Once you have created a website of value, people will come, get information and click on some ads once in a while. The only effort is when building it up at the beginning and writing once in a while. And then you can just earn little by little, if not a lot at once.

Multiply

If you could create more blogs of value, or keep writing content for your blogs regularly, you can achieve a lot more than 1000 impressions a day for your portfolio of blogs. Also, you will then get a range of topics based on which the ads will be displayed and thus can earn you much higher than above. My first blog was actually not in English, and still I was able to get those many clicks. English keywords would be more valuable and should get higher CPC.

In conclusion, Google AdSense is an excellent way of building small sources of passive income. Find things you have something to write about and others might find useful. Get regular traffic and see your AdSense earnings grow!

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Passive Income Series - Part III - Inflation Indexed Bonds

Often when planning for regular income sources for retirement, the biggest issue is inflation. Today a bond might be giving a regular coupon payments. The problem comes when over the long term when inflation might lessen the buying power of the same coupon payments. One of the ways to protect against inflation is to invest in inflation indexed bonds. The coupon to be paid each year is adjusted for inflation, thus effectively earning you a real return.

How does it work?

Typically the principal amount of the bond itself will grow with the inflation rate while the coupon % will remain constant. Hence, you are effectively receiving a higher coupon as a percentage of higher principal notional. At the end the principal amount paid is enhanced by the cumulative inflation for the years of the bond's existence.

Example

Let's say there is a $100 bond today, with a real coupon of 4% per year. The notional is inflation indexed. If the inflation is 2% for year 1, the notional at the end of year 1 becomes 102. Now 4% coupon is paid on this new notional, equal to $4.08. Now this coupon might not seem completely adjusted for inflation, but the principal is fully adjusted. So, on redemption effective return would be adjusted for inflation.

Is this a good investment?

If one is looking for low risk income generation strategies, inflation indexed bonds provide a good solution. However, the returns are typically low as compared to stocks over the long run. So, a good mix of both these asset classes can enhance returns while provide a fair amount of diversification. The problem is not all countries issue inflation indexed bonds. Further, one has to think about sovereign default risk which is increasingly an issue with crisis in Greek, Cyprus and other European countries.

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Passive Income Series - Part II - High Dividend Stocks

One of the most common and effective ways of generating passive income is by investing in high dividend paying stocks. 'High' is a relative number, one has to compare with the government bonds or other coupon paying bonds. However, investing in stocks has another distinct advantage and that is the upside potential. In financial terms, this is called capital gains. Let's say there is a stock of XYZ Company trading in the market at $100 today. The holder of the stock receives a regular dividend of $4 every year. In addition to this, a stock can gain in value (and also reduce in value). In the scenario where the stock price rises and become $110, there is a 10% gain called 'capital gain' in addition to the 4% dividend yield. However, this capital gain is unrealized till we sell the stock and is thus less significant for our purpose.

We want to invest in such stocks which we can hold on for very long periods of time where with time, dividends are at least regular and keep increasing at a reasonable rate. So, we don't want to sell the stock at $110 also, we just want to hold it and keep achieving this 'passive income' in the form of dividends from the stock.

Now as we grow old, our risk appetite changes based on our portfolio needs. If we could grow a portfolio which is giving us regular income without having to sell it, that would be the ideal case to have. However, the stock market experiences regular crashes and can take away a lot of value from the stocks. And if we are forced to sell the stocks in such times, we will be selling them at a loss. Ideally, we should keep reducing our dependence on stocks and invest more and more in less risky assets such as bonds as we grow old.

Not all high dividend yield stocks are good. Understanding this is of particular importance. The fact that a stock ABC trading at $50 today and still giving $4 of dividend doesn't mean that it's a good stock. It may be that recently the market has been shorting the stock aggressively in light of some bad news regarding the firm. This bad news can be of such a nature that can affect the future dividend payments and thus affect the stock's attractiveness for us. Hence, it is important to look and understand the financial statements of the stocks before investing in them. We have to especially look at the ability of the firm to be able to pay future dividends and interest payments. It definitely helps to look at the revenue streams of the firm and see if they are going to be affected in the future or if they are probably going to stay steady.

How much dividend yield is good?

A good comparison is with the government bonds that are trading in the market. If investing in the government yields can give good coupons comparable to the stock dividend, it might make more sense to consider investing in them as they are risk free. However, in early stages of life we want to get exposure to stock price appreciation and thus invest in stocks. Personally I think anything above 4% is good given that the company is a good strong brand with steady cash flows to support these payments in addition to reinvesting something back in the business to make it grow.

How to invest?

The best way to invest would be to regularly invest equal amounts of money on a stock (also known as SIP or systematic investment plan). This means when the stock price comes down you are buying more units of the stock and when it goes up you are buying lesser number of units. For our case as we are looking for dividend yields, we may even want to put more conditions like not buying a stock if the price goes so high that the effective dividend yield falls below 4%. For example, we have a stock that is trading at $50 and gives a dividend of $4. Now we keep buying shares worth $1000 each month, till the stock price rises above $100 at which point we stop as the effective dividend yield then falls below 4%.

How many stocks to hold?

Being from the financial industry, I know people who have million dollar portfolios. But what I have found in the most successful investors is their ability to invest in few good stocks. Nobody undermines the power of diversification. However, diversification works so much better when done across asset classes. And instead of investing in 40 stocks in the name of diversification and thus picking up some bad names, successful investors pick 10-15 solid company stocks and keep investing money in them regularly.

How long to hold the stocks?

Holding only 10-15 stocks in the portfolio doesn't at all mean that you need to hold them forever. In fact what one should do is review the portfolio after every earnings report (once every quarter) and look at the financials of the company. If the things that made the stock good once don’t hold any good there is no reason to hold on to the stock in hope. Hope is not the way to invest. Investing should always be backed by solid analysis for it to work. There is always some other better stock out there in the market. Go look for it. The other point to sell might be when the yields fall too low. Remember that we stopped investing when yields fell below 4%. However, we can have another rule that we sell when the yields fall below 1.5% or 2%, thus capturing the capital gains for the stock. We need to make sure that a substantial dividend increment is not expected before selling, as that might be the reason for stock price to appreciate so much.

Over time, the portfolio should grow large giving good regular dividends. We have to then also think about putting these dividends to good use. If we are already earning a regular salary from our job and don't need these dividends for 'paying the bills', then just regularly invest them somewhere else, or even back into more dividend paying stocks if the valuations are good.

Always back you investments with solid analysis and see your portfolio grow!

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Understanding Structured Notes

Structured Notes are structured investment products sold by banks. The buyer of the note can either get principal protection or not get it. This affects the participation that he gets in the other financial products linked to the note. Let's say there is a 1 million USD structured note. To buy the note, client comes and gives 1 million dollar to the bank and the bank issues the 'note'. Now if this note is 100% Principal protected, this means that the holder of the note will get a minimum of 1 million USD at maturity and nothing less with a possibility of achieving higher than market returns. Say he was able to get a 3% return by simply buying the bond for one year. Buying this structured note gives a chance of getting higher than 3% return.

How does it work?

Investment Banks typically have a funding/ALM (Asset Liability Management) desk. This desk basically lends or borrows money to other desks and manages investments in short term instruments in the market to manage the effect on bank's balance sheet. When a note is issued from the bank, the money comes in and is deposited with ALM to get some promised returns. Let's say for our example we can get 3% return. So instead of depositing the whole 100% amount with ALM, only 100/(1+3%) is deposited. This should give us 100% after 1 year. This is the way 100% principal protection is achieved. So we are left with 100-100/1.03 = 2.91% with us today.

This 2.91% then goes into many things. Some of it goes into client income (CI) for the Sales person. Say he wants to earn 50 bps (=0.50%) in this case. Some may be given back to the client as an incentive to invest. This is called Client upfront, say another 50 bps. Thus, client effectively has to deposit only 99.5% of the Note's notional to begin with. Now the rest of 1.91% is used to sell some options to the client with an aim to enhance the coupon to more than 3%.

The easiest way to enhance the coupon is by selling a digital option to the client. Let's say in this case we sell a digital USDJPY put option with a strike of 97, and a payoff equal to 4% of the notional. This option costs approximately 1.91%. If, at maturity, USDJPY < 97, client receives 104% at maturity (100% from ALM and 4% from this option payoff. However, if USDJPY > 97 at maturity, client receives on 100% (principal protected) and the digital option expires worth less. The option that we buy from this 1.91% can vary from digitals to various other option structures and can be structured as per client views.

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Fiction Reading List - 10-Aug-2013

Agatha Christie

Peril at End House: A Hercule Poirot Mystery (Hercule Poirot Mysteries)
And Then There Were None
The Unexpected Guest
Poirot's Early Cases

Harry Potter Series - J. K. Rowling

Harry Potter and the Sorcerer's Stone (Book 1)
Harry Potter And The Chamber Of Secrets (Book 2)
Harry Potter and the Prisoner of Azkaban (Book 3)
Harry Potter And The Goblet Of Fire (Book 4)
Harry Potter And The Order Of The Phoenix (Book 5)
Harry Potter and the Half-Blood Prince (Book 6)
Harry Potter and the Deathly Hallows (Book 7)

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Reading Tricks for Non-Readers

Couple of weeks back I shared my reading plan online. I also shared the fact that I plan to read one book every fortnight and will keep updating that page with my reading progress. This simple action has helped me pick up a new habit which I'll share with you today. The key to getting things done is to have a clear vision of the goal. The clearer the vision is the more likely it is to be achieved. As I wrote down that post about reading my goal became very clear. It wasn't just about reading 25-30 books a year but it was further broken down at a weekly (or bi-weekly level). This means I am forced to look back at it every week to see whether I failed or succeeded. With a goal like 25 books a year, we are more likely to review it at the end of the year and say 'well we couldn't finish this resolution last year, let's try it this year'. Longer term goals have this problem. You only realize that it's out of reach over longer time periods. That's the reason it is so important to break goals into smaller actionable-reviewable sub-goals. When we do this, we know more frequently of whether it's working or not and whether we need to make some changes to our goal.

I have another theory. Once, one thing starts working well in life it has a positive effect of all the rest of the things. Since I decided, now I'm on my third book and always looking out for more books in my reading list. Getting time to read isn't easy if you don't have a habit for it. For the past couple of weeks, I'm trying to create time by waking up 25 minutes early and reading. I now also read regularly before falling asleep. I'm able to read 40-45 pages everyday which means there is no pressure to create extra time specially to read.

Bookmarks are important

I have often started reading many books before only to end up reading 40 odd pages and forgetting about it. It is important to have these cues for us to remember where to pick up, as they also remind us of the very fact that we are supposed to be reading this book.

One useful trick for readers

I have found that it is much slower when we start reading a book. Typically while reading fiction, we may be taking more time to get at ease with the characters or the plot that is building. With non-fiction also we might take more time to adjust to the writing style of the author. This can be sometimes discouraging. However, it helps to remain calm and persistent with the first half of the book. Make an extra effort to read through the first half by devoting more time each day or trying to read faster. Once you are halfway through the book, reading usually speeds up and our mind also gets into a state where it believes it is much better to finish the book now that to leave if after reading more than half of it. This is a good place to be. Force yourself into it.

Reading helps at work

Since I have started reading regularly, I have found that I'm reading better at the office also. Most of the jobs in the world are of such nature that we are required to go through a lot of information on a daily basis, especially so in the world of finance. Reading those 25 minutes in the morning means my mind is already up and running before I reach office. Then I can skim through the news or other emails quicker than usual. Once this becomes easier, this task of information consumption itself becomes less daunting and thus we end up avoiding or postponing it less often.

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