2012 Shareholder Letter

Warren Buffet’s #1 fan!

One of the ways that Mr. PoP has enjoyed learning about business over the years is by reading (and re-reading!) Warren Buffet’s annual Shareholder Letters written to the shareholders of Berkshire Hathaway. In these letters, Mr. Buffet outlines the achievements of the previous year, and often talks about the challenges and opportunities that he sees in the economy at large. In honor of the release of Mr. Buffet’s annual letter today, we thought we’d share our own 2012 PoP Shareholder Letter with you all.

 

Executive Summary

2012 was a good year for the PoPs, both financially and emotionally. Several things went right on the Balance Sheet, with strong gains in our stock market and RE assets, and an income stream that hit record highs as well. We don’t expect this kind of performance every year (indeed, we expect our income from our jobs to drop drastically in the future), but if we had a few more like this we wouldn’t complain either. Our spending remains higher than we would perhaps like, largely due to our need for two vehicles and some of the money/time tradeoffs that we make when we’re both fully employed.

  • End of 2011 Net Worth: $256.7K
  • End of 2012 Net Worth: $426.9K
  • Gross Increase / Percentage Increase: + $170.2K / +66.3%
  • 2012 Gross Income: $184.0K Employment / $16.9K Investment Properties
  • 2012 Spending: $55.2K Personal / $16.5K Investment Properties

Money

Real Estate: One of the cornerstones to our balance sheet success this year was the Real Estate acquisitions that we had made over the past 3 years. By the end of 2012 we have seen significant appreciation in our duplex and main residence, while the piece of land we own remains roughly at its purchased value.  However, as you can see from the income numbers, actual cash flow from the rental property is still low as we continue to roll rents back into the property in the form of capital improvements.  We aim to do the same for the next two years, at which point most of the major systems in the duplex will be in a condition to last many years.

Mr. PoP is kicking himself for not trying to buy more duplexes in 2010, but Mrs. PoP keeps reminding him that they took on as much leverage as they were comfortable with at the time (when income was much lower), so to have leveraged further would have been a large over-extension. And over-extending is not congruent with the PoPs’ overarching investment strategy. The PoPs prefer well-researched, calculated investments with plenty of room for error in terms of leverage.

Stock Market: The stock market was kind to the PoPs in 2012 as well, but Mrs. PoP would have really liked to have seen a fiscal cliff dip at the end of 2012 to buy into the Roth IRAs. In 2012, we made moves to maximize the return from our employer 401K matches by coordinating our efforts in our 401Ks with separate employers. Expect more of the same in 2013 as we do not anticipate making any market-timing moves.

Income: Our income this year was almost embarassingly high – in the 90th perecentile of all US households. This is in large part to the bonuses that Mr. PoP earned in the latter half of the year. Well done, Mr. PoP!

Spending: The increase in income has been largely (but not completely) unnoted in our spending patterns, as was noted in a recent conversation. After a friend heard how much we made this year, he looked at what Mr. PoP was wearing and said, “Well, what are you doing with all of it then?” Not spending it on clothes, evidently. The nature of Mr. PoP’s job almost guarantee’s up years and down years, making it all the more important to capture that income on the balance sheet by continuing to pay down debt and invest wisely.

The increase in our spending this year was largely due to travel which became a part of the PoPs’ lives again this year. After several years of nose-to-the-grindstone real estate projects, the PoPs had some breathing room and used it. The first vacation that the PoPs took together since their wedding three years prior. A trip to participate in Mrs. PoP’s BFF’s wedding, as well as a couple other smaller trips associated with Mrs. PoP’s running. The PoPs recognize that time-crunched travel on a limited number of vacation days is not the most cost-effective way to travel, and eagerly anticipate the time when they will be able to take longer trips on lower budgets when the tethers to our office desks are cut.

The Future: With some recent spreadsheet tinkering, it appears that FIRE is closer than we had previously considered. (Perhaps as close as 5 or 6 years away.) We are still trying to optimize and stress test those models, but anticipate paying off the $50K loan to Mr. PoP’s parents in 2013 and thereafter contributing heavily to a taxable early retirement fun which will supplement 72(t) withdrawals and income from our real estate portfolio in early retirement.

 

Happiness

General Emotional State: The PoPs had an overarching very happy year. Much of the enjoyment in our relationship is derived from working on projects and building things together, and this blog has been a great source of joy to tinker with as a team.

Stress Level: Reasonable, on average. Mr. PoP endured a bumpy ride at work during the beginning of 2012, and Mrs. PoP’s foot injury in December derailed her running for a bit (which is a primary source of stress relief for her!) and led to some stress around the holidays. We hope to keep the successes after these stressors in mind should they repeat themselves.

 

Kittens

Kitty PoP: Remains as healthy, happy, and adorable as ever. Dieting during 2012 helped Kitty PoP reach his own personal Mt. Everest – climbing to the top of the closet unassisted. However, his sleek figure has not given him the confidence to strut his stuff for others. Kitty PoP’s fear of people outside of Mr and Mrs PoP (and few family and friends) keeps his desire to explore the world outside the house in check.

Discussions On An Additional Acquisition Kitten: Largely stalled. Kitten season is approaching, and if “the purrrrfect” kitten presents itself, the PoPs may be convinced to adopt. But they do not consider ourselves currently in the market for just any kitten.

 

2012 Highlight Reel

  • Took a vacation to Hawaii that Mr. PoP’s work paid for, where we got the inspiration to start the Blog!
  • Mrs. PoP was in her BFF’s wedding and set a new marathon PR
  • Mr. PoP restored a lawnmower and finally got that tube amplifier that he’s been wanting forever
  • Best money spent was restoring the antique map that had been in our family for decades
  • Worst money spent was about $1k for a roof repair on the duplex that is unlikely to last more than 5 years-we should have spent the additional $6K to get it done now
  • Paid off the HELOC (okay technically this happened in January 2013 – but most of the hard work was done in 2012)

 

Anyone else out there devour Buffet’s Shareholder Letter every year the way Mr. PoP does? How would your shareholder letter read for FY 2012?

30 comments to 2012 Shareholder Letter

  • Congrats on a great year, PoPs!!! You deserve every bit of it. As for our shareholder letter, the 2012 one, probably not so good, but our 2013 one is going to be wonderful, thanks to all of the great things we’re learning from PoP and other wonderful blog sites. :-)
    Laurie @ The Frugal Farmer recently posted..February 2013 RecapMy Profile

  • CR

    Way to go guys! I’d invest in this company… where can I sign up?
    CR recently posted..Starting from Scratch: A frugal plan to grow wealthyMy Profile

  • Great job in 2012! I wish our rental properties were appreciating like yours!!! =)
    Holly@ClubThrifty recently posted..VIP Club Roundup – 18th EditionMy Profile

    • Thanks Holly! We’ll take the appreciation, but it doesn’t do a whole lot at this point since we’re really interested in them as long term cash flow properties. Until it gets stupid high and we feel like we have to sell, all the appreciation does is raise our tax bill.

  • Great job!!! Our income in 2012 was small due to just starting out after school, but 2012 will hopefully be a good year. Although most of our savings will to our first home :) I am so excited :)
    SavvyFinancialLatina recently posted..I Filed our 2012 TaxesMy Profile

    • Yup – if 2013 is going to be your first year with a couple of paychecks coming in full-time, you’re going to see a big difference. I remember when that happened for us – it was like “Whoa!” We were so used to living one one paycheck that our savings started accelerating a LOT the year we were both in more “career-track” jobs.

  • Karen Anne

    I went over to the monthly income post. Why do you have to insure the duplex for twice what it’s worth?

    • Right now our insurance requires it to be insured for the cost to rebuild it. And because of the RE crash and many building supplies increasing in prices the last few years, the rebuild cost estimate is significantly higher than the current market value. Hence why not many places like this duplex are being built at the moment. =)

  • I do not have such a letter, but what a great idea. I hope our 2013 will be a great year. I have high hopes. You guys are doing really great. Congratulations.
    Kim@Eyesonthedollar recently posted..Money Memories-Canon Rebel T4i DSLR GiveawayMy Profile

    • If nothing else, as you first full year working less, “Happiness” should be at some all-time highs for you in 2013! Okay, maybe not all-time. I’m guessing the year your daughter was born was pretty happy, too =)

  • My letter would look more like a penny stock company than one from Berkshire Hathaway.

    I did help Mr. Buffet’s bottom line too much in 2012. He owns a lot of Dairy Queen and I wasted too much money there. 2013 sees a weekly junk food allowance of $6.00 so the value of Dairy Queen will probably fall in 2013.

    You could greatly improve the happiness level for yourselves and Kitty Pop by adding a dog to your portfolio.
    Jane Savers @ The Money Puzzle recently posted..What Can Happen If You Receive An Early InheritanceMy Profile

    • Haha, I gave Warren a couple of bucks too this year by buying a pair of Brooks running shoes. But I didn’t like them, so they’ll be the last =)

      A dog would be lovely, and is definitely in the dream someday. But it’s really a time issue right now. We wouldn’t want to leave a dog alone for 12 hours the way we sometimes do with Kitty PoP, and neither of us work close enough to home that coming home in the middle of the day is really an option.

  • If only all CEOs were like Warren Buffet. My shareholders letter wouldn’t be that great. Actually, if my life were a company I wouldn’t have invested in it until the very end of the year when I began The Frugal Path and started becoming financial fit again.
    I hope that the PoPs have a great 2013 and if you were an investment I’d buy more than a few shares.
    Justin@TheFrugalPath recently posted..Canon Rebel T4i DSLR Giveaway!My Profile

    • In a very real way, you are investing in your life – and it sounds like your blog has had a great ROI for you! Here’s to a great 2013 for all of us!

  • What a great idea :) Looks like you’ve had a pretty good year. My fiscal year letter wouldn’t have such large numbers. I’d probably talk about stocks, leverage, and how I plan to constantly grow income by 10% every year 😀 Enjoy the rest of your weekend.

  • This is a really cool idea. It’s one thing to tally all your investments and look at the returns. But I like how you guys talked through each one and accepted the qualitative aspects for each. This would be a good exercise for a lot of investors to go through.
    My Money Design recently posted..Our Vacation Dilemma – Plus Blog Updates and a GiveawayMy Profile

    • There are just so many different ways to look at investments, for us we try and look at it holistically and think about how they’re playing a role in our lives. In the end, it’s not how much money we have, but how happy we are that truly matters, so for us quality of life plays into a lot of our investments. If something has a really high possible ROI but is going to cause us to lose sleep or weaken or health through stress is it worth it? Probably not.

  • “Mr. PoP is kicking himself for not trying to buy more duplexes in 2010”

    There is a couple good lessons in this for everyone:
    1) Keep a stash on hand to take advantage of good deals. You never know when the economy might take a big hit, allowing for some great opportunities.
    2) One of my favorite Buffett quotes is something like: “Be greedy when others are fearful.” Smart investors were buying 5 years ago when the economy was in shambles.

    Congratulations on your success! I have a feeling the the next 4 years are going to be very good for you.
    Mr. 1500 recently posted..Performance Update 2 of 50: Falling in FebruaryMy Profile

    • Definitely agree with #1. It’s one of the reasons we tend to keep our cash buffers higher than most. In 2010, we were definitely still in the start-up phase of our corporation marriage (married in 2009), so we used all the savings we had, and then leveraged as much as we felt comfortable doing to follow the advice in your favorite Buffet quote. =)

      I *hope* we’ll be even more well-positioned for the next (inevitable) bust – just curious to see where it’s going to happen!

  • I love the shareholder letter. Looks like 2012 was a great year. If I hadn’t been laid off in early 2009 I would have a rental property but it took me a while to find a new job and now I’m making up for lost time by saving as much as I can. I’d still like to get a rental property at some point but that’s just going to have to wait for the time being. My wife and I will have to sit down and have a serious discussion about when we want to try and purchase our first home so if that’s still a few years away then a rental might be in store. I can’t wait for the 2013 shareholder letter.
    JC @ Passive-Income-Pursuit recently posted..Net Worth Update – February 2013My Profile

    • 2012 was definitely a good one for us. Glad that you’re making up for that lost time from the lay off. And best of luck with purchasing your first home and that rental in the future. =)

  • LOL, the Buffet’s #1 fan is hilarious! Great to see your results.
    Martin recently posted..Stocks which sparked my attention for addition todayMy Profile

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