Investment Lesson #2 - Debt Securities

In the first lesson I made it a point to emphasize that debt is bad -- in fact debt is slavery. Now I'm going to turn it all around and tell you that it's good to be on the other side of a debt. In other words, if you owe money, that's bad but if money is owed to you, that's good.

Of course it isn't that simple. There are situations where borrowing money makes sense. Businesses borrow money all the time, so do governments and banks. It would be very difficult to buy a home without taking out a mortgage. There are even situations where you can leverage your investments by using a form of borrowing called margin--but we'll get into that later.

My mom wanted to teach us about saving so she took us to the local savings and loan. I was earning interest on the money I had on deposit there because someone else was borrowing that money and paying interest on it. Basically, that's how banks work. I was aware that the bank was lending out my money at a higher interest rate than they were paying me, but it would have been very difficult for me to find who was borrowing my money so I could deal with them directly. In addition, all the depositors' money was pooled together so it was impossible to determine who's money was going to which borrower.

What would happen, I thought, if a majority of the depositors decided to withdraw their money at the same time? That actually happens, it's called a run on the bank. People are afraid that the bank would make bad loans, fail and they would loose their money. It happened a lot during the Great Depression in the 1930's so the U.S. government created the Federal Deposit Insurance Corporation (FDIC) which protected depositors. When I opened my savings account, it was insured up to a limit of $15,000. Wow, I thought I'd never reach that. Today the FDIC limit is $250,000 per depositor. Federally insured savings accounts are one of the safest investments you can make, they also pay the lowest interest rates.

Up until this point we've been covering savings, though I sometimes refer to a savings account as an investment. There's a fuzzy line between savings and investing. Some people might define savings as money hidden under the mattress, others say that short term investments like 3-month treasury bills and money market mutual funds are savings, not an investment. Still others define all government issues as savings. It doesn't really matter where you draw the line. As far as I'm concerned when you are accumulating money, you are saving. When you put that money to work for you, you're investing.

Collecting interest on a savings account might sound very basic, but is it really? I didn't withdraw the interest that the bank was paying me, it went right back into my account so that the interest would compound. In other words, the bank started paying me interest on the interest that they already paid me. Over the short term it doesn't seem like much, but over a long period of time it can really add up.

• "Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it."

--Albert Einstein

There is dispute whether this is an actual quote by Albert Einstein, it probably isn't--but it's a good quote nonetheless. Einstein was also credited for discovering a simple mathematical formula for compound interest called the Rule of 72 but the formula has been found in the writings of Italian mathematician Luca Pacioli dating back to 1494. The way you use the rule of 72 is like this: 72/(interest rate) = (years required for the investment to double). My passbook savings account was earning 5.5% so using this formula, 72/5.5=13 years to double. If you can find an investment that returns 12% it would take just 6 years to double. I've made trades that doubled in just a few days, but those are very rare. Why is finding the doubling rate important? Exponential growth. You might have heard of the Wheat and Chessboard fable. Basically, if you put one grain of wheat (or rice or sand or whatever) on one square of a chessboard then 2 on the next, 4 on the next and keep doubling it for each square, how many grains would you have when you finished all 64 squares? The answer is such a huge number that it is greater than the amount of all the grain that was harvested in the history of humanity and the pile would be bigger than Mount Everest. That's the power of compound interest.

The rule of 72 breaks down in the real world of investing as does exponential growth. Still, the greater the return and the longer the time, the more likely you'll be able to accumulate a large sum.

Investing in debt securities may seem very simple and safe at first and once you know about the power of compounding interest and exponential growth--heck it's a no-brainer. Just find the investment that gives you the highest interest rate for the longest time and that's it, right? Wrong! First of all, a bond (a long term debt) that pays the highest interest rate relative to other debt securities is usually referred to as a junk bond. What it means is that the interest rate on a junk bond is high because there is a good chance that the entity that issued that bond will likely default on the payment. In addition, interest is taxable as regular income so depending on your tax bracket the amount you will be able to keep from your interest income is a fraction of the actual interest rate. Another thing to consider is that if you want to sell a debt security that you own before its maturity date, it may be worth more or less than face value due to fluctuations in the prevailing interest rates.

My experience with debt securities began when I opened my first Individual Retirement Account, IRA. I was just turning 30 and realizing that I've got to start doing something about retirement. Interest earned in an IRA are sheltered from taxes until you start withdrawing at retirement. I figured that I should play it safe so I invested in short-term debt securities issued by the U.S. government. The simplest way to invest in these treasury notes, bills and bonds (they have different names depending on the length of maturity) was through a mutual fund. An advantage of investing through a mutual fund was that instead of investing the entire $2,000 IRA limit at one time I could invest $166.67 per month--that made it much easier for me to get started. I kept close watch on my IRA and saw it gradually go up in value, never going down. I was definitely playing it safe, too safe. As it turned out, the mutual fund was a "tax advantaged" account meaning that a portion of the interest was exempt of state and local taxes--but the IRA was already exempt from all income taxes so it didn't make sense using this investment in an IRA. If I had invested instead in a taxable bond fund I would have gotten a better return. I eventually changed my investment strategy for my IRA from bonds to stocks but a couple of years ago I went back into bonds for my IRA. Why? Because bonds are a valuable mix in a total investment portfolio and the interest is sheltered from taxes in the retirement account.

One of the biggest risks to debt securities, even a greater possibility than default, is interest rate fluctuation. I read about it and thought I understood it but it didn't sink in until I experienced it. Once my father died my mom started relying on me to help her with her finances. She had some money that she put into a mutual fund in that same savings and loan where I had my first savings account. She wanted something that paid a better than average interest rate but preferred it to be non-taxable, she hated to see her earnings get eaten up by taxes. The manager at the savings and loan suggested a tax-free mutual fund for her. Tax-free mutual funds invest in bonds issued by local and state governments (municipal bonds) for community projects like building bridges, dams and schools. Since it is an investment in the community these municipal bonds are either not taxed at all or are taxed only by state but not federal or federal and not state. Many municipal bonds have very long maturity dates and very low interest rates. My mom was happy getting her meager tax-free interest but what she didn't realize was that her principal, her original investment, was dropping in value faster than the interest that was coming in. The way it works is like this--let's say you buy a $1,000 bond that earns 5% interest and you decide to sell it before the maturity date. At the time you put the bond back on the market the interest rates have gone up to 10%. In order to get that 10% the bond will sell for less than face value. It depends how many years to maturity, dividend date and other factors but basically, your bond has lost value. Of course the reverse is true if interest rates drop. If you intend to hold onto the bond until maturity, it shouldn't really matter to you if the value goes up or down, you will still get the same interest (coupon rate) but since a mutual fund has to report the value of it's portfolio they have to report the current market value. In addition, a mutual fund may need to sell or trade bonds before maturity to meet customer redemption demands. In my mom's case, interest rates were rising and her mutual fund lost value. She had no idea until I pointed it out on her statements. I also discovered that the fund she was invested in had very high fees and were commission based, also known as load funds, so the drop in value was even more severe.

There are a wide variety of bonds, some have interest rates that change during the life of the bond (like the Treasury Inflation-Protected Securities - TIPS) some bonds are callable, meaning that the issuer can pay them off before the maturity date, some don't pay interest at all but are sold at a discount to their face value like series EE Savings Bonds. There are also many rules how they are taxed and reported. I got to play the rich uncle when I sent my nephews Kevin and Brian $100 Savings Bonds for Christmas that only cost me $50--and since it was a gift to a minor nobody had to report taxes on them. There's lots to bonds, the way they are reported in basis points (0.01% = 1 basis point), the way they are listed, some can be converted for company stock, etc. It can get very complicated and as a result bonds are neglected in many portfolios--I didn't invest for bonds for several years.

What I do these days is to put a portion of my investment in a mutual fund that invests in a large number of bonds in order to match an index of the total bond market. I'll get into this more in another lesson on asset allocation.

In the next lesson we'll finally get into stocks--something that I'm sure you'll find much more exciting. However, some people that know the stock market much better than I do put all of their money in bonds. Joe Dominguez, the author of "Your Money Or Your Life" worked in a Wall Street firm but put all of his own money into 30 year treasury bonds. He retired when he was 31 years old. Of course back then the "Long Bonds" as they are known were paying over 13% interest. I'd gladly put all of my money in 30-year treasuries with that sort of return. Today they pay a measly 3.73%. Of course interest rates are at historically low levels, but what happens to today's bonds if, or rather when, interest rates rise?

Next lesson--the stock market.

Investment Lesson #1 - Before you invest you should save.

There's lots of ways to invest and it can be a very complicated subject or it can be very simple. I have dabbled in stocks, bonds, real estate so I'll tell you about my experience in these areas. Let's start with the first lesson and how I learned it.

Lesson #1 - Before you invest you should save.

When I was about 10 years old my mom took me to the local savings and loan and opened a passbook savings account for me and my sister. After depositing a few dollars that I earned mowing lawns I received a little booklet that listed my account balance. Once a month I would go deposit a few more dollars and get my passbook updated with the amount of interest I earned. It may seem a little outdated these days but savings accounts are still around. Of course my motivation for saving back then was to buy something that I wanted. What was interesting was that once I saved enough money to buy that something, I didn't really want it as badly any more. I also found out that if I took money out of my account, the interest that I would earn would go down. I can still remember the interest rate that I got on my first savings account, 5.5%. I also remember that when I would walk into the savings and loan they would have advertisements for their other services. I learned that once I had enough in my savings account I could earn a higher interest rate in a different type of account called a certificate of deposit (CD). There was a catch though, I couldn't withdraw my money for a period of time called a maturity date. The longer the maturity date, the more interest they would pay me. I bought a 6-month CD and earned a whopping 7%. It seemed like a very long time back then, but every month I'd go to get the interest stamped into my booklet and watched it grow. Of course I didn't save all of my money, I also bought stuff--paint for my bicycle, a tennis racket, model rockets, you know--stuff. The stuff that I bought became more and more expensive as I earned more money, cameras, stereos, even cars, but I kept my savings account, though at times the balance went down to just a few dollars.

Of course I eventually opened up a checking account and once I was in college I got my very first credit card--an American Express Card. It may seem like an unlikely card to start with, but they were running a promotion for college students that can prove they had a guaranteed job upon graduation. I had an uncle who ran a TV repair shop in Mar Vista and he helped me with the job guarantee, though I never went to work for him. Once I got that card, other credit cards were easy. In a few months I had at least two Visa and two Mastercards, a Shell gas card, a JC Penny's card a Sears card and probably a few more I forgot about.

Now I want to make sure you understand the time line here. This was after I was in the Navy (1975-77) and before I started Art Center College(1981). You see, I didn't have enough money saved up to go to Art Center (the college of my choice) so I went to Cal State Long Beach for a couple of years and got a degree in journalism. As a Vietnam era veteran I was paid to go to college. It didn't matter which college or how much the tuition, I got paid the same. So instead of getting a job I went to an inexpensive, state funded college. It was with my government subsidy income that I was able to qualify for all this credit. I was also able to save up enough money to go to Art Center for one semester. With my good grades and credit rating I qualified for student loans.

I did graduate, a BFA in photography, with distinction no less, but only because I was awarded a scholarship and got a couple of those student loans. For the first time in my life--I went into debt. It wasn't terrible, I had several months after graduation before I had to start paying back the loans, the interest rate was a very low 3% and they gave me a 10 year payment plan so the monthly payments were doable. So--I went off to New York City to apprentice with some of the best photographers in the world. I made very little money and paid a lot in rent. I had to watch every penny. I mean that quite literally, I got some accounting ledgers and kept track of all my income and expenses, including a few coins I found on the street. It was very tough in the city and I was barely scraping by but I was determined not to give up. I started getting my first "real" photography assignments in New York about 6 months after I arrived. I had several magazine assignments, including my first cover. My assistant days were over sooner than I could imagine. However, magazine publishers and advertising agencies tend to be a bit slow in paying. They expect you to cover the expenses of the assignment until their client pays them or when the accounting department decides to pay your invoice, 30 to 90 days later--or more. Those credit cards sure came in handy and I went further into debt. My plans were to learn from the best in New York then return to Southern California where the weather was much more to my liking so I started looking for assignments out West. I got offers to shoot corporate annual reports--good money, good work, so I packed up and bought a ticket home, paying with my credit card. I kept busy and in a few months I rented a studio space and bought a brand new mini van, financed of course and I even had a line of credit at the bank and open accounts at the local pro photography stores. I was still in my 20's with my career well on the way--but why did I feel poor? Debt.

There's an old mining song where the chorus line goes like this:

You load sixteen tons, what do you get
Another day older and deeper in debt
Saint Peter don't you call me 'cause I can't go
I owe my soul to the company store

The way mines used to operate was that the workers were allowed to bring their families to live in the shacks near the mining site and instead of being paid with money they were paid with credit vouchers which could redeem at the company store. Everything they needed, well at least their basic survival necessities, were available at the company store. If they needed more than they had earned vouchers, the owners would give them credit which they could pay off by working. Eventually, the miners got so far into debt that they couldn't leave to work somewhere else. This was known as "Debt Bondage" and it was essentially a form of slavery. The practice continued until the United Mine Workers and other unions put an end to it.

Think about it, the practice of Debt Bondage is illegal yet people continue to get themselves into debt all the time. They are working to pay interest to the bank, credit union, mortgage company, loan shark, etc. There are basically two ways out of debt, bankruptcy or death. Okay, there is another option, pay off the debt--that's what I decided to do.

I moved back home with my parents. It wasn't too bad, I basically just slept there. I was also getting along much better with my parents in my 30's than I was when I was in my early 20's. I did the math and found out that if I got out of my studio and only took the location jobs I would take in less money but would cut my overhead costs dramatically so when my lease was up, I moved out of the studio. First of all I paid off my high interest debt, the credit cards. From then on, I always paid off their balances in full. I also paid off the loan on my van, early. I even paid off my student loan way ahead of the 10 year payment plan. I was going to buy a house and almost closed a deal on one but it fell through at the last minute--so, I continued living at home instead of renting an apartment.

Things were going okay for me. Though I wasn't rich yet, my savings were growing. I had just enough work to keep me busy enough. On the weekends I would go sailing. And my relationships with girls were starting to get more serious. Then I got the worst news ever--my father had cancer and only a few months left to live.

I tried taking him to different doctors, maybe there was something someone could do, but there was nothing. The only thing I could do was to spend as much time with him as possible--and get to know him better. Some of our conversations were barely coherent. He told me to eat lots of meat because cattle were big, powerful animals. Mind you the doctor advised my father to cut back on red meat when he had a heart attack 20 years earlier--he really missed his steaks. My dad wasn't religious but he did get interested in eastern philosophy in his later years. Zen and Buddhists believe in reincarnation so I was surprised when he told me to, "find what you really want to do with your life and do it--you only live once." I hadn't worked or earned any money in months but because I had no debt and enough savings I was able to spend that precious time with my dad. I was right next to him when he died.

I made a few decisions at this point. I always wanted to work in the motion picture industry but was talked out of it so I settled on my second choice, photography. Though I liked photography, I didn't like running the business. I decided to find a good paying position making movies. I also decided that I didn't want to work until mandatory retirement age, do a couple of trips and drop dead--like my father. I was going to get healthy and leave the rat race early. In order to do this I had to start getting serious about saving as much money as possible. I wasn't too concerned about finding the right person, getting married or having kids. My friends who got married early and had kids were either miserable, divorced or both--and they were all in debt.

I'll spare you the story of how I got into the movie industry but it was during that first year working in film that I got really serious about building up my savings and to start investing. I did have an Individual Retirement Account that I started when I had the studio and was starting to take care of some of my mom's money--I always seemed to do better managing her money than my own, probably because I didn't take as much risk with her investments. I was also getting a fairly substantial salary and had almost no expenses. I was still living at home with my mom on the weekends and staying with my brother during the week. He didn't have much room so I slept in a sleeping bag in his living room for an entire year. When I finally got an apartment my requirements were to be in a nice neighborhood, I choose Beverly Hills, and the rent had to be so low that I could pay for it even if I was on unemployment, I found a place in Beverly Hills for $500 per month, my unemployment benefits were about $1,000 per month back then. However, I never went on unemployment while I had that place.

You might have heard of "rules" like save 10% of your income. I'd say that would be good but it isn't really a rule, just a suggestion. What really helps is to have a reason to save and to set a realistic goal. My reason to save was to have the freedom to go where I pleased, when I want, having the option of taking a job or not working, in other words--to be financially independent. I wanted to reach that point as soon as possible, certainly no latter than 55 years old so I could have several years of leisurely living. I also had a dollar amount in mind, $500,000. I figured with that I could live a nice quiet, simple yet secure life as a bachelor. You could call it early retirement. I'd rather call it an alternate lifestyle because for me retirement brings up images of old people sitting in rocking chairs waiting for the Grim Reaper to arrive.

I didn't remain a bachelor, I got married. Matrimony, well that's a whole different lesson. Let's just say that I was very fortunate to meet someone who shares my dreams.

So to wrap up this first lesson:

1. Live below your means - Spend less than you earn, the difference between your income and expenses is called savings.
2. Stay out of debt - Debt is Slavery!
3. Make attainable goals - It is much easier to save if you have a plan. Make sure your goals are reachable, don't set them too high but definitely don't make them too easy!
4. Avoid compulsive buying - Stop and think before purchasing anything. Is that item really necessary? Is it really going to make you happier? Are you willing to push back your financial goals to make that purchase?
5. Don't spend windfalls, save it - A windfall is when you come upon money that you weren't really planning to get. I could be an inheritance, winning a law suit selling some property or taking the prize in the lottery. There are plenty of stories of lottery winners going bankrupt.

I got rid of lots of books when we downsized to fit in the back house, but there were a couple of books that I saved. I read them a few times and passed them on to one of my nephews.

Your Money Or Your Life - by Joe Dominguez and Vicki Robin

Debt is Slavery: and 9 Other Things I Wish My Dad Had Taught Me About Money - by Michael Mihalik

So start saving. In the next lesson we'll get started on investing.

My Very Quiet Year - and 1/2

It has been one and one-half years since I last blogged. Yeah, that's quite some time off. I guess it is about time for an excuse and an update.

Well, I guess I just didn't have a compelling reason to post anything. This blog evolved from a racewalking training diary to a way to keep in touch with my nephews to saving some interesting notes and articles for future reference to sort of a pointless collection of wandering musings. Note that my last post was about downsizing to one car and a scooter, but there was a lot more going on at that time that I didn't write about. Why? Maybe I was a bit afraid--afraid that what I was doing would be a complete failure or perhaps I might be doing something wrong and a government agency would use my post as proof of illicit activity.

Enough with the fear, it seems that there is way too much of it going around these days. As for what wrong I might be doing--I'm having so much fun that it probably isn't legal. We did a few upgrades to the studio that the previous owner built over the garage and converted it into a very cozy guest house. Then we moved into the guest house and rented out our main house. Now for the best part, when I finished up the show I was working on at DreamWorks Animation, my wife Rosie and I took a trip to Greece and toured around some of the islands. When we got back I enrolled at Los Angeles City College and signed up for drawing and guitar class. I went back to work between semesters, but just long enough to keep my union hours updated so that we wouldn't lose our health insurance benefits. Oh, and we also took a trip to New Mexico to deliver a car to a friend who was working out there and another trip to Spain for a friend's wedding.

All this traveling around has changed my perspective on the world, or more specifically on how we live in the United States of America. We downsized and rented out our house so we could work less and have more time for ourselves. In other words, we wanted to check out of the rat race. Not surprisingly, people in the US tend to work more and travel less than Europeans. I think that a part of that is the fear that the government has instilled on its population, of course there are terrorists going after Americans--just look at the government's foreign policy. In addition, we have higher medical costs than most countries. In fact one of the main causes of bankruptcy in the US is caused by medical bills. The one thing that is keeping us in the workforce is the fear of losing our health insurance. If we need to buy the coverage that we're getting from the Motion Picture Industry Pension & Health Plan we'd need to find a part-time job. However, there are no part-time jobs in our professions, there are only jobs with long days. No wonder one of my co-workers at DreamWorks used to say, "yeah I served time on that show" whenever we talked about work.

Where am I headed from here? I'm playing around with doing some hand-drawn animation. I've only done a little bit of it so far but it is great fun and totally different from the army of "creative" people employed by the studios cranking out ****--well, I guess it's called entertainment. Sometimes something really good comes out of Hollywood, but not very often.

I'll be getting back to posting, if for nothing else than to save a few notes and have them out in the open to share with anyone--without fear.

Trying Hard to be Green

I've been talking about getting a Vespa for a long time--well, I finally did it. It is a used 2001 model ET4 with less than 500 miles on it. Yeah, I know--crazy. We've been a one-car household for a while now and although I really like riding the bicycle/bus/train sometimes I want something that I can run some errands and get me to/from work a little quicker.

Well, it turned out that riding the Vespa around town was such a blast that it has become my main transportation. I even took Rosie out for a 2-up ride and she loved it.

Oh yeah--the one car we settled on was a new Prius. I've heard the arguments for and against it, but for our needs it seemed to make the most sense.

Good Blood, Bad Blood

I had my yearly physical a week ago and got the results of my blood test. A little over a year ago I was diagnosed with very high cholesterol and was prescribed statin medication which I decided not to take and to try lowering it with diet and exercise alone. Here's how it's been going:

                 January '08   June '08  August '08  March '09 ***April '11 ***May '12  *August '16  **August '18 ****August '19
Total Cholesterol     289         215         183        195          197        189          221           197          179
LDL Cholesterol       214         121         115        122          115        112          131           110          110
HDL Cholesterol        48          46          42         47           52         43           51            52           46

*   Added August 21, 2018 - darn it, cholesterol is still too high after all these years.
**  Added August 31, 2018 - well, it is headed in the right direction but not far enough.
*** Added October 3, 2018 - Dr. McDougall 10-Day program from 2012
****Added September 20, 2019 - so now LDL between 70 and 189 mg/dL is a reason to consider statin therapy. Ugh.

In November I had it checked at a health fair where I work and got a reading of under 150 but I doubt that was accurate. In any case, I've been successful at keeping it down but it has creeped up since the summer.

I've got to confess that because of that super low reading in November I started getting a bit careless with my diet and exercise. I'm still riding my bicycle and eat mostly vegetarian and low fat, but the dessert bar at work is way too tempting and I tend to gobble down whatever is put in front of me.

Feeling a bit apprehensive over this last exam I decided to do the equivalent of cramming for an exam. I rode my bicycle hard and fast over the hill to work all week and cut out all the fat I could from my meals. I'm not sure if it made a difference on my cholesterol but something else popped up on the blood test:

Hematocrit 40.3

YOU ARE MILDLY ANEMIC. STOP BY FOR ADDITIONAL BLOOD TESTS TO FIND OUT WHY YOU ARE ANEMIC.

Geez, if it's not one thing it's another! In addition, my blood pressure was rather low. What's up with low blood pressure and anemia?

Well a quick check on the Internet (what did we do before Google?) calmed me down. It turns out that many athletes experience these same symptoms when starting up a strenuous exercise program. So much for cramming for a blood test by over training. In addition, there's a slight chance of vitamin B-12 deficiency that could also cause anemia but I'm not a big fan of popping pills (including vitamin pills) for a quick fix.

I need to go back for another blood test but I won't be cramming for the test.

Hybrid Bicycle Experiment

We recently became a one-car household so I've been doing some experimenting with alternate forms of transportation. The bicycle was working fine, especially when combined with public transportation, but it was nowhere nearly as fast or convenient as a car. However, driving the one and only car we own to work just so it can sit in the parking structure all day and leaving my wife stranded at home without wheels--well, that wasn't an option.

Riding the bike was fun for the most part but mashing my way over the Cahuenga pass, in traffic, in the rain, late at night, not so much. What I needed was a little push to make it a little easier and the answer seemed to be to augment the energy from my legs with an electric motor.

I already had a couple of bicycles so I had a backup in case the experiment went awry. Good thing too.


The motor I settled on was a Bafang geared front hub. The reason I went with a front hub was because it seemed simpler to mount. A geared motor should have more torque than a direct drive which should make climbing the hill pretty much effortless. Another advantage of a geared motor is that it freewheels. Some may say freewheeling is a disadvantage because it cannot regenerate electricity and recharge the battery like a hybrid car--but this requires a special controller and I didn't want to over complicate things since this was my first e-bike build.

I got the motor as a kit that included building the hub into a 700c wheel along with an ecrazyman controller, twist throttle and brake levers with cutoff switches so you can't apply power and brakes at the same time.

What the kit didn't include was a battery and that's where I went all out and got the latest craze in e-bikes, a lithium iron phosphate, LiFePO4, 48 volt 20 amp hour Ping battery pack.

Granted, it doesn't look like much more than a bunch of metal strips wrapped up in black duct tape, but it should deliver quite a jolt of power for many years, more than enough to get me to and from work. Notice that it has three wires, a positive, a charging negative and a discharging negative. Also notice that it doesn't have a connector and the end of the wires. The charger came with a connector but the controller had a completely different connector. Neither of these connectors were standard of the shelf items so I soldered common XLR audio connectors that are available in any neighborhood Radio Shack store--though you might have to do some searching because the sales people probably won't know they have XLR connectors.

I was able to find a Topeak trunk bag that fit the battery perfectly. The bag, paired with a Topeak rack made it very easy to remove the pack from the bike and take it inside for charging. However, in order to make this practical the controller and all the other wires and connectors had to live somewhere other than the trunk bag so I got a frame bag which worked great for this purpose.

Except for the connector for the battery everything seemed pretty much straight forward even though absolutely no instructions were included with any of the items that I ordered. Some wire colors didn't match up but the connectors did, like this one for the brakes:


While on the brakes, the controller had only one brake connector but of course there's a front and rear brake. I ended up splicing the brake wires in parallel so that applying either brake would cut off power to the motor.

So, all the connectors fit and the wires matched up by color and it was time to go for a test ride.




It worked! It ran little rougher than I expected and there wasn't much pull, but it pulled--for about two blocks then it cut out. That wasn't very impressive, but whoa did the motor get hot! It turned out that I succeeded in burning out the motor on the very first test run.

With the help of John Robert Homes from Holmes Hobbies we were able to determine that the problem was that the proper way of hooking things up is connecting the green wire to the yellow and the yellow to green. What? That's right, the motor manufacturer and the controller maker obviously weren't talking to each other when they made their products. In any case, JRH replaced my burned out motor stator assembly at no charge and once I got the wires switched over it finally delivered as promised.


This time I made it a few blocks before encountering yet another problem. The hub motor attaches to the front fork with a sort of "key" in the axle:


The fit was nice and tight but after just a few accelerations--wow that was cool, it has so much torque that the front wheel spins when I take off. Oops:


The fork dropouts deformed and the axle spun around a few turns and nearly broke off the cable! It turns out that what I needed was a set of torque arms, another hard learned lesson. Gee, this would be so much easier if it came with instructions!


I didn't have the facility to fabricate anything beefy enough so I ended up Googling around and found some made specifically for e-bikes made by AmpedBikes. Just to be safe I bought a pair and put one on each side.


Finished, finally--or so I thought.


The spinning front wheel was annoying so I put on my extra large Wald front basket. I was planning on using the removable battery feature for bus rides but technically, you're not supposed to mount a bicycle with an "over sized" basket on a bus bike rack. However, as it turned out I got to work much faster without having to use the bus so it didn't make a difference. Besides, I now had a cargo bike capable of carrying three bags of groceries--and then some with the panniers on the trunk bag deployed.

I did take the bike on the metro rail system regularly for the ride home--no need to remove the battery for that.

The cruising speed on the flats was a rather quick 22 miles per hour. Yeah, I know, that doesn't sound like much but believe me, on a bicycle without any suspension it is plenty fast. Even the hill that had me huffing and puffing before the conversion was an easy 18 MPH on the uphill side and coasting downhill, geared motor so no drag, was the same scary 35 MPH. I burned out a few brake pads on that route!

One thing that was a problem was plugging in the battery, the connector would always arc. If the pins were not lined up properly it could make a rather loud pop. Of course this wasn't very good on the connector so I tried this trick:

I used XLR instead of Deans connectors and it seemed like it would work.


But it didn't stop the arcing so I removed it. I think a better solution would be to put a heavy duty switch on the power line but I got used to the spark when connecting the battery, though it did blacken the pins on the XLR connector it didn't seem to affect performance.

I rode the bike daily for a little over a month through wind, cold and even rain over the brutal Los Angeles winter--OK, it wasn't all that brutal but I rode the bike when my bike riding co-workers wimped out.

There were a few problems, like the time I got off work late and I was in a hurry to get home so I decided to ride over the hill instead of take the train. There's several miles of rough road without street lights and I hit a huge pot hole at full speed. I usually don't get flats but with the extra weight of the battery my rear tire didn't stand a chance. My wife came to the rescue so I wouldn't have to do a repair job on a dark road in the rain--glad we kept one car, and the bicycle carrier!

The only other problem that I had was when the brake levers got wet they would short out. It wasn't all that bad, just a quick brake and release would shake them dry enough to continue. That problem went away after one day without rain.

All stories have an ending and this one ended one morning going into work. After crossing the Cahuenga Pass the motor lost most of it's power and it was feeling very rough. Did I wear out the gears? Did the motor burn out? I'm not really sure. It might be repairable but the quick fix would be to replace the motor--or get a Vespa. Since it was my dream all along to get a Vespa and the e-bike was just an experiment I decided to end the experiment and put the bike up for sale.

The motor might be shot, the bike abused but the battery is in even better shape than when I bought it. Turns out that LiFePO4 batteries need a break in period of about a month before they can stand a deep discharge without damaging the cells. How far will the bike go on a charge? Only the next owner will be able to answer that question.

Making Animated Movies

Although I have signed a non-disclosure agreement with DreamWorks Animation, I think it is OK to post this clip showing how animated movies are made.