Bad HOA Meeting Experience

[MediumTex]

However, we never got past the idea of even reviewing the current 100% CD approach.  Some of the members apparently felt insulted that anyone would question the wisdom of a 100% bank CD strategy used to fund multi-decade liabilities.

Instead of suing, you might want to seduce them in baby steps over time.  Why don't you bring up 5-year CD laddering at the next meeting and go from there?

You mean sort of treat them like a herd of wild horses?

[Xan]

However, we never got past the idea of even reviewing the current 100% CD approach.  Some of the members apparently felt insulted that anyone would question the wisdom of a 100% bank CD strategy used to fund multi-decade liabilities.

Instead of suing, you might want to seduce them in baby steps over time.  Why don't you bring up 5-year CD laddering at the next meeting and go from there?

You mean sort of treat them like a herd of wild horses?

I don't know what you do with wild horses, but I typically don't tell them about 5-year CD laddering.

[doodle]

TIPS held to maturity might be a good option, but explaining how bonds work to a novice can be difficult, especially if they are already predisposed not to want to understand what you are telling them.

That's what makes the game challenging! If it were easy, there wouldn't be any joy in winning. :-)

Easy on the gas pedal...maybe just introduce the idea with a simple Carl Sagan like explanation. Then let it go. Follow up over the next months with a few conversations with some of the less headstrong ones....maybe a little MT charm for the others to ease yourself into position of trust. Maybe do some reading on LBJ...a master of back channels.

As every great thinker realizes, all of this is just a giant playground game. Taking that perspective on issues makes things much more interesting I've found. I sometimes revel working with difficult people just for the challenge of it all. It's like jumping up a few levels on a video game :-)

[MediumTex]

TIPS held to maturity might be a good option, but explaining how bonds work to a novice can be difficult, especially if they are already predisposed not to want to understand what you are telling them.

That's what makes the game challenging! If it were easy, there wouldn't be any joy in winning. :-)

Easy on the gas pedal...maybe just introduce the idea with a simple Carl Sagan like explanation. Then let it go. Follow up over the next months with a few conversations with some of the less headstrong ones....maybe a little MT charm for the others to ease yourself into position of trust. Maybe do some reading on LBJ...a master of back channels.

As every great thinker realizes, all of this is just a giant playground game. Taking that perspective on issues makes things much more interesting I've found. I sometimes revel working with difficult people just for the challenge of it all. It's like jumping up a few levels on a video game :-)

All good thoughts.

Near the end of the discussion I got them to agree that a longer duration CD might be a good idea (since the liabilities we are attempting to fund are decades away), so maybe I achieved more than I realized.

I like the idea about legitimizing the native populations' fear of melons from a few posts up.  I'm normally very good about that sort of thing, but I guess I assumed a higher level of sophistication than I encountered--my failure to calibrate the delivery to the audience was my error.

I suppose I do have one large advantage in that I am far less emotionally attached to my position than the 100% 12 month CD crowd is to theirs.  That should make it easier for me to identify new opportunities for compromise that would better achieve the HOA's goals.

[MediumTex]

People are funny.

I just got an email from one of the board members who seemed pretty hostile to the approach I was describing and she is buying several copies of our book for circulation among board members who are interested in becoming more knowledgeable about the challenges involved with successful long term investing.

I am now buttered up.

[dualstow]

Nice!

[WiseOne]

People are funny.

I just got an email from one of the board members who seemed pretty hostile to the approach I was describing and she is buying several copies of our book for circulation among board members who are interested in becoming more knowledgeable about the challenges involved with successful long term investing.

I am now buttered up.

Good job!

It'll take time but they'll gradually realize what a financial wizard they have in their midst, and your ideas will slowly start to get traction.  Talking to individuals offline is a good idea too.  There's probably one or two who are the unspoken leaders, and you might want to make a point to talk to them.

This is all assuming that you have a relatively benign group with no hidden agendas or power brokering.  Unfortunately my own coop board is filled with people of that description.  In fact, a group of us finally got so fed up that we're staging a grass-roots revolt.  In the process of getting a petition signed, we discovered that  the percentage of owner-occupied apartments is much less than advertised, and possibly low enough to make the building unwarrantable.  So our board may be falsifying information to banks, which is ever so slightly illegal.

And I believe our reserve fund CDs are held at just two banks.

[MediumTex]

And I believe our reserve fund CDs are held at just two banks.

What's the deal with HOAs and CDs?

If you're going to go that route, why not do a 10 year treasury bond ladder or something like that?  If held to maturity there is no principal risk and most of the time that approach will provide better returns than CDs with even less risk.

[WiseOne]

And I believe our reserve fund CDs are held at just two banks.

What's the deal with HOAs and CDs?

If you're going to go that route, why not do a 10 year treasury bond ladder or something like that?  If held to maturity there is no principal risk and most of the time that approach will provide better returns than CDs with even less risk.

Agree completely!  And why not have the corporation buy their quota of I-bonds every year while they're at it.  Deferring taxes on the interest until the year when big expenses happen (to create deductions) is nice too.  Oh and no state/local taxes on the interest either.  You'd think it would be a no-brainer.

[Lone Wolf]

I just got an email from one of the board members who seemed pretty hostile to the approach I was describing and she is buying several copies of our book for circulation among board members who are interested in becoming more knowledgeable about the challenges involved with successful long term investing.

This is awesome.  It sounds like things went much better than you thought!

I have to imagine that in financial matters, it is very difficult to resist the urge to follow the herd.  One of the great benefits to following the herd is that if something terrible befalls the rest of the herd, you are not alone.  And when people don't have a deep understanding of finance, the last thing they want to do is find themselves hanging out alone.

I definitely have sympathy with the human needs that led them to react with so much fear.  It's difficult to know exactly how to break through this, but the voice of an authority is usually a great start.  A published financial author?  Sounds like just the authority figure they need! 

[MachineGhost]

MT is being the change he wants to see in the world!

[smurff]

What's the deal with HOAs and CDs?

If you're going to go that route, why not do a 10 year treasury bond ladder or something like that?  If held to maturity there is no principal risk and most of the time that approach will provide better returns than CDs with even less risk.

Banks give better interest rates (on the underlying mortgage as well as any money borrowed to do repairs and capital improvements) if the coop corporation or condo HOA holds its funds in the bank, and some of them just do it with CDs. 

They could, in theory, keep the funds in a brokerage account with the bank, especially if it is a money center bank, like Bank of America, Citi, or JP Morgan Chase, and use that account to invest in Treasury bills, notes, and bonds, stock, the works.  But that would then mean someone on the board or in the management office (sometimes they're in both) would have to have knowledge of how to manage a portfolio, and the board has to think seriously about handling immunity against being liable if something (other than fraud, outright theft, or gross negligence) goes wrong as a result of that individual's actions.  Ten-year T-bond ladder?  What the heck's that? they would ask. Never mind that this is actually less risky than keeping $ in bank CDs.

Basically, CDs become the default choice--there's no need to think, and there's that soothing feeling that comes with FDIC coverage.  After all, the reasoning goes, what can possibly go wrong if you "invest" in a CD?

[MediumTex]

Basically, CDs become the default choice--there's no need to think, and there's that soothing feeling that comes with FDIC coverage.  After all, the reasoning goes, what can possibly go wrong if you "invest" in a CD?

That would be like assuming the role of fiduciary with respect to keeping a barrel of water full and choosing to ignore the slow leak in the bottom.

(See one of our gag reel illustrations from the book for an example of what this process might look like.)

[MediumTex]

MT is being the change he wants to see in the world!

I saw wrong in the world...and I tried to right it.

I saw hurt among the people...and I tried to heal it.

I saw CDs funding long term liabilities...and I tried to PP it.

[WiseOne]

I think the requirement is a line item for a reserve fund contribution of 10% of annual HOA/coop income.  It's been on the books for a long time but is only recently being enforced.  The banks otherwise don't care how much you have in reserve, or where it's stashed.

Banks also want to see a large percentage of owner-occupied units - as in, not belonging to the sponsor, not rented, and not empty.  I'm not sure what the percentage is but it's somewhere around 60-70%.  The best info I have is that rates start going up below 75%, and below 60% the building may be unwarrantable.