One of the lessons of history is that nothing is often a good thing to
do and always a clever thing to say.
Will Durant
Is Value Investing The Same As Market Timing?
Warren Buffett has been touted as the world's foremost 'Buy and Hold' Investor. He's been quoted as saying he likes to hold stocks "forever".
He's also a value investor. So most people could draw the conclusion that value investing means buying for the long term. I disagree strongly. Buying when something is undervalued and selling when its overvalued is essentially market timing. You time your entry and exit points based on the fundamental underlying value of the asset. So Buffett really is a market timer!
Warren Buffett recently sold his Laguna Hills house because "it was overvalued". Its not like he needed any extra money or couldn't make his mortgage payments!!!
I feel sorry for all those people who are still buying real estate in Southern California because "its a lifestyle choice and people always want to live here", or "in the long run, it will always go up", or "its currently a buyers market so now is the time to buy" or some stupid excuse that ignores the underlying value of the property.
When a property rents out for $1450/mo and your mortgage is $2300 on an interst-only loan 3 year ARM, its way overpriced!!! Which is why I sold my condo and pocketed the cash!
He's also a value investor. So most people could draw the conclusion that value investing means buying for the long term. I disagree strongly. Buying when something is undervalued and selling when its overvalued is essentially market timing. You time your entry and exit points based on the fundamental underlying value of the asset. So Buffett really is a market timer!
Warren Buffett recently sold his Laguna Hills house because "it was overvalued". Its not like he needed any extra money or couldn't make his mortgage payments!!!
I feel sorry for all those people who are still buying real estate in Southern California because "its a lifestyle choice and people always want to live here", or "in the long run, it will always go up", or "its currently a buyers market so now is the time to buy" or some stupid excuse that ignores the underlying value of the property.
When a property rents out for $1450/mo and your mortgage is $2300 on an interst-only loan 3 year ARM, its way overpriced!!! Which is why I sold my condo and pocketed the cash!
World's 2nd Richest Man Hires Richest Man As His Philanthropic Advisor!
You may have heard today that Warren Buffett is giving away his billions to Bill Gates's Foundation to give away. It amounts to about 3 billion a year at the current stock price which is pretty impressive. It looks like charitable giving is now back in style!
What I thought was truly impressive is that Buffett only draws a salary of $100,000 which is probably amongst the least of all publicly traded companies in the US. His wealth comes from his 38% ownership in Berkshire Hathaway and the money he's been investing on his own which has probably done better than the approx 30% return that Berkshire has seen. So essentially he gets a performance incentive for managing the companies money!
What I thought was truly impressive is that Buffett only draws a salary of $100,000 which is probably amongst the least of all publicly traded companies in the US. His wealth comes from his 38% ownership in Berkshire Hathaway and the money he's been investing on his own which has probably done better than the approx 30% return that Berkshire has seen. So essentially he gets a performance incentive for managing the companies money!
Bite Off What You Can Chew
One of the more popular real estate clubs in San Diego is the SDCIA. It attracts a lot of newbie investors and is quite large. It has a really good message board which has posters from all across the nation.
One unfortunate investor turned to the message board to see if he could salvage his bad investment in Tucson. He basically bought a house through Chris Szabo in Tucson and was losing his shirt on it.
Chris Szabo is an "investors realtor" and was promoting preconstruction investment opportunities in Tucson. I spoke to him in the fall of last year and he seemed pretty smart. However nothing he said about Tucson seemed to attractive to me. Tucson just didn't have the things I like when it comes to investing. Its too small population-wise, not enough job/population growth, there's ample land and its full of spill-over speculators from Phoenix and California. Chris was just trying to pump it up to drum up some business for himself. Can't blame him for that, thats what agents do!
Anyway, back to the investor. He probably didn't know how to analyse the deal and made the fatal mistake on relying on his realtor for advice. Real estate agents work for you. You tell them what to do and you dictate what they are to look for. Never the other way around!
Next mistake, he put down a $27,000 deposit. You never put down a deposit that is so big that you can't walk away from it! [I put down several $2,000 deposits in Boise and ended up walking away from half of them.]
After that, even though the market sucked and he knew he couldn't close and make a profit, he still bought it! You always take your losses early. If you think its going to be a dog, you just walk away from it. Better to lose $27,000 early on and be done with it! Rather than face the prospect of losing even more and go through a ton of heartburn. If he had a smaller deposit he could've easily walked away from it.
Now he's stuck with $2500/mo in payments that he can't afford! Why would you buy a house with payments that you can't afford? Always stick to entry-level houses because they're easier to sell, easier to rent out[without being too negative] and they're easier to hold if vacant! Don't go for the fancy homes in the fancy neighborhoods. You're better off buying 2-3 starter homes instead of 1 luxury home.
I've made mistakes too in the past. But you mitigate your risk by keeping your deals as big as you can afford, having 6 months mortgage in the bank [over and above 6 months living expenses for yourself], sharing the risk [and reward] with partners, doing your own due diligence and not relying on information from people who have a conflict of interest.
Any one deal shouldn't be big enough to bankrupt you. You keep your losses small enough to invest another day. After all, FAILURE IS PART OF WINNING! You can't try something and not have failure now and then. How you deal with them determines how far you succeed.
One unfortunate investor turned to the message board to see if he could salvage his bad investment in Tucson. He basically bought a house through Chris Szabo in Tucson and was losing his shirt on it.
Chris Szabo is an "investors realtor" and was promoting preconstruction investment opportunities in Tucson. I spoke to him in the fall of last year and he seemed pretty smart. However nothing he said about Tucson seemed to attractive to me. Tucson just didn't have the things I like when it comes to investing. Its too small population-wise, not enough job/population growth, there's ample land and its full of spill-over speculators from Phoenix and California. Chris was just trying to pump it up to drum up some business for himself. Can't blame him for that, thats what agents do!
Anyway, back to the investor. He probably didn't know how to analyse the deal and made the fatal mistake on relying on his realtor for advice. Real estate agents work for you. You tell them what to do and you dictate what they are to look for. Never the other way around!
Next mistake, he put down a $27,000 deposit. You never put down a deposit that is so big that you can't walk away from it! [I put down several $2,000 deposits in Boise and ended up walking away from half of them.]
After that, even though the market sucked and he knew he couldn't close and make a profit, he still bought it! You always take your losses early. If you think its going to be a dog, you just walk away from it. Better to lose $27,000 early on and be done with it! Rather than face the prospect of losing even more and go through a ton of heartburn. If he had a smaller deposit he could've easily walked away from it.
Now he's stuck with $2500/mo in payments that he can't afford! Why would you buy a house with payments that you can't afford? Always stick to entry-level houses because they're easier to sell, easier to rent out[without being too negative] and they're easier to hold if vacant! Don't go for the fancy homes in the fancy neighborhoods. You're better off buying 2-3 starter homes instead of 1 luxury home.
I've made mistakes too in the past. But you mitigate your risk by keeping your deals as big as you can afford, having 6 months mortgage in the bank [over and above 6 months living expenses for yourself], sharing the risk [and reward] with partners, doing your own due diligence and not relying on information from people who have a conflict of interest.
Any one deal shouldn't be big enough to bankrupt you. You keep your losses small enough to invest another day. After all, FAILURE IS PART OF WINNING! You can't try something and not have failure now and then. How you deal with them determines how far you succeed.
17 Well Project Almost Funded
Some of the regular readers may have realized that I haven't been posting as much in the past few weeks. Thats because I've been busy trying to raise some cash!
As I mentioned in previous post, I've been trying to raise $200,000 for a 17 oil well project. We've gotten commitments for just over 82% so it looks like we should be able to hit our target of raising the money.
We had a conference call with the operators of the rig that went pretty well. We covered the basics of the project and the risk factors involved.
It should be a sweet deal if it works out the way I envision it. Hopefully after I raise the money and get all the paperwork sorted out I should be able to focus on posting to the blog.
Hey its almost the weekend!!!
As I mentioned in previous post, I've been trying to raise $200,000 for a 17 oil well project. We've gotten commitments for just over 82% so it looks like we should be able to hit our target of raising the money.
We had a conference call with the operators of the rig that went pretty well. We covered the basics of the project and the risk factors involved.
It should be a sweet deal if it works out the way I envision it. Hopefully after I raise the money and get all the paperwork sorted out I should be able to focus on posting to the blog.
Hey its almost the weekend!!!
Overvalued Markets in the Rockies
The same report that I mentioned in the previous post also has a list of over-priced markets. Here's an excerpt from an article about overvalued markets in the Rockies.
Prices can swing from being grossly undervalued to highly overvalued, so there's
no need to panic if you're investments are listed. You want to look at population and job growth[yet again] and other factors. But its time to start looking for the exit strategy. Places like Bend and Medford should definitely be avoided. St. George and Boise warrant further inspection.
Of the cities surveyed in the Rocky Mountain West, St. George, Utah led with a median home price that is 52.5 percent above a reasonable market value. In the same quarter just two years ago it was 1.1 percent overvalued. The study determined that base market value by looking at house prices, interest rates, population densities and historical premiums and discounts.
Boise came in second at 28.6 percent more than market value. Two years ago, the overvaluation was at 1.4 percent. Grand Junction, Colo. came in third at 27.8 percent above and Farmington in New Mexico was next at 22.5 percent.
Elsewhere in the Rockies, the overvaluation numbers look like this:
Greeley: 20.8 percent (down from 24 percent two years ago)
Boulder: 15.6 percent (down from 24.8 percent two years ago)
Provo: 11.9 percent (up from 10.6 percent two years ago)
Fort Collins: 9.6 percent (down from 15.5 percent two years ago)
Billings: 8.3 percent (up from 22.7 percent two years ago)
Salt Lake City: 8 percent (up from 10.6 percent below market value in 2004)
Albuquerque: 8 percent (up from 5.7 percent below market value two years ago)
Colorado Springs: 6.4 percent (down from 9.1 percent above in 2004)
Denver: 5.9 percent (down from 13 percent two years ago)
And, some big ones near the region:
Bend, Oregon: 76.4 percent (up from 22.7 percent two years ago)
Medford, Oregon: 66.4 percent (up from 25.7 percent in 2004)
Spokane: 23.2 percent (up from .2 percent in 2004)
Prices can swing from being grossly undervalued to highly overvalued, so there's
no need to panic if you're investments are listed. You want to look at population and job growth[yet again] and other factors. But its time to start looking for the exit strategy. Places like Bend and Medford should definitely be avoided. St. George and Boise warrant further inspection.
Report on House Prices in 2006
City National Bank has a great annual report that indicates the home price over or under-valuation in various cities through the country. I used this as a basis for my research into investing in states like Texas and Utah 2 years ago.
However, its not the last word when it comes to investing. You want to check other values like job growth, population growth and very importantly historic market trends in that area. I found that Utah had a historically inverse cycle to that of California.
I decided against Texas for a variety of reasons and chose Utah instead. Make sure you do your own research and never solely rely on someone else's judgement.
You can read the complete 27 report here.
http://snipurl.com/home_prices_in_2006
However, its not the last word when it comes to investing. You want to check other values like job growth, population growth and very importantly historic market trends in that area. I found that Utah had a historically inverse cycle to that of California.
I decided against Texas for a variety of reasons and chose Utah instead. Make sure you do your own research and never solely rely on someone else's judgement.
You can read the complete 27 report here.
http://snipurl.com/home_prices_in_2006
Should The Oil Companies Be Punished For Making Obscene Amounts Of Money?
Its become very popular for people to critise companies for making a profit. Stacy at the Birds and Bills has a post on Socially Conscious Investing.She's proudly willing to sacrifice her retirement so long as Oil companies don't make too much money.
Why are people upset that Exxon is making a profit?
When the demand for oil has been the highest in human history, don't you think the companies providing it should be making more money than ever before? This is their golden period. If they weren't reporting record profits and distributing dividends[which incidentally get taxed twice anyway], it would mean they're clearly mis-managed and the Execs needed to get fired. They're making money because supply is limited and global demand keeps on increasing. Because people are unwilling to stop driving their 9-mpg hummers to pick-up they're 2 year from day care. Not because they're scamming poor people or doing anything illegal!
Why are a lot of people so anti-business? Would we rather have the Oil companies report lousy returns like the car companies? Would we prefer they lay people off and ruin local economies like Houston? Isn't that like being unAmerican?
I think that America has become greatly anti-business in the past 2-3 years. If the trend continues we'll be just like most of Europe and we'll no longer be amongst the best places on earth to start a business and become wealthy!
Please snatch money from my retirement plan. I have no idea what stocks are in the mutual-fund mix in my 401k, but personally, I'm perfectly ok with taking a hit there in return for tighter controls on the petroleum companies that are currently reporting annual profits surpassing the GDPs of most developing nations.
Why are people upset that Exxon is making a profit?
When the demand for oil has been the highest in human history, don't you think the companies providing it should be making more money than ever before? This is their golden period. If they weren't reporting record profits and distributing dividends[which incidentally get taxed twice anyway], it would mean they're clearly mis-managed and the Execs needed to get fired. They're making money because supply is limited and global demand keeps on increasing. Because people are unwilling to stop driving their 9-mpg hummers to pick-up they're 2 year from day care. Not because they're scamming poor people or doing anything illegal!
Why are a lot of people so anti-business? Would we rather have the Oil companies report lousy returns like the car companies? Would we prefer they lay people off and ruin local economies like Houston? Isn't that like being unAmerican?
I think that America has become greatly anti-business in the past 2-3 years. If the trend continues we'll be just like most of Europe and we'll no longer be amongst the best places on earth to start a business and become wealthy!
What A Hectic Week!!!
Thank God the week is over! I had to rush to raise $100k for an oil deal in TX that I'm working on. I thought I had more time, but it turns out we had a competing bid for a LOT more than our bid on the same project, so basically we only had 7 days. Well, I got the money in 3 days!!! Quite hectic though.
Readers will probably ask me what the deal is so I'll tell you. We're uncapping on old well that should produce about 10-12 bopd[barrels of oil per day] and then use that as collateral to borrow $250k from the bank to drill a brand new one, which should generate 125 bopd. If all goes well the investors will make a 20 fold return and I'll get a small cut of the action too!
Also of note is that I turned in my resignation today. Quite a surprise to my co-workers, but I have a position at a friend's company which has more flexible hours so I can do more of my investment stuff! Definitely a step in the right direction. It was such a rush! Can't wait for the day when I can quit for good and focus on my investments 100%.
Anyway, there's no rest for the wicked. I now have 2 weeks to raise another $200k for another oil deal I'm working on in another state.
Readers will probably ask me what the deal is so I'll tell you. We're uncapping on old well that should produce about 10-12 bopd[barrels of oil per day] and then use that as collateral to borrow $250k from the bank to drill a brand new one, which should generate 125 bopd. If all goes well the investors will make a 20 fold return and I'll get a small cut of the action too!
Also of note is that I turned in my resignation today. Quite a surprise to my co-workers, but I have a position at a friend's company which has more flexible hours so I can do more of my investment stuff! Definitely a step in the right direction. It was such a rush! Can't wait for the day when I can quit for good and focus on my investments 100%.
Anyway, there's no rest for the wicked. I now have 2 weeks to raise another $200k for another oil deal I'm working on in another state.
Beware of ATT- Yahoo DSL
I had recently signed up for ATT-Yahoo DSL. They had promised me a risk-free 30 day trial. About 2 days after I got the kit I found out I had to go visit my mom as she was having heart surgery. I called them up telling them I was going to be gone for a month and I just wanted to cancel. Apparently the customer rep, Cookie that I was talking to convinced me not to cancel and that she'd give me another 90 days to try out the service. I bought it.
After I came back, with the work-load of a new job and a ton of investments I decided I couldn't be bothered installing the DSL stuff and called them up to cancel. I was told that the 30 day period had passed and I was out of luck. Apparently Cookie didn't have the authority to make those kind of decisions [so basically I'm just a liar], and they billed me for the 2 months and a $99 cancellation fee. Basically I stuck with a bill for $136 for a service I never used or installed.
ATT-Yahoo DSL sucks!
My phone bill is usually around $1500-$1800 per year. I'm thinking of just cancelling my ATT account[or SBC whatever they are now] and going fully VOIP. I've already explained a cheaper alternative to even Vonage, might as well implement it.
After I came back, with the work-load of a new job and a ton of investments I decided I couldn't be bothered installing the DSL stuff and called them up to cancel. I was told that the 30 day period had passed and I was out of luck. Apparently Cookie didn't have the authority to make those kind of decisions [so basically I'm just a liar], and they billed me for the 2 months and a $99 cancellation fee. Basically I stuck with a bill for $136 for a service I never used or installed.
ATT-Yahoo DSL sucks!
My phone bill is usually around $1500-$1800 per year. I'm thinking of just cancelling my ATT account[or SBC whatever they are now] and going fully VOIP. I've already explained a cheaper alternative to even Vonage, might as well implement it.
Buying a House as a Tax Shelter [in a Depreciating Market]
Does it make sense to buy a house for the tax advantages? Apparently quite a lot of people think so. check out the comments on Renting is for suckers". There are over a hundred comments. Quite a few of them say you should buy even if the housing market is heading down because "in the long run, its a good investment". Funny, thats exactly what I heard today in the office. One of my co-workers wants to buy a house right now. So what if its going down. It can only go down a little bit and in the long run, it can only go up. Of course, in the long run we're all dead and some people are always broke!
Not wanting to figure out how investing works and what rich people do to become rich and stay rich is a trait that most of my friends share. They also believe that buying a house for the tax write-offs is a good idea. Since when is spending a dollar to save 30 cents a good idea? If you can rent an apartment for half of what the mortgage is, why would you buy it? You're better off buying a house in an appreciating area even if its out of state and holding that for a few years. With the depreciation, you'll probably save the same if not more on taxes. And once the local market settles, you can sell the out of state property and buy a bigger house for less.
Not wanting to figure out how investing works and what rich people do to become rich and stay rich is a trait that most of my friends share. They also believe that buying a house for the tax write-offs is a good idea. Since when is spending a dollar to save 30 cents a good idea? If you can rent an apartment for half of what the mortgage is, why would you buy it? You're better off buying a house in an appreciating area even if its out of state and holding that for a few years. With the depreciation, you'll probably save the same if not more on taxes. And once the local market settles, you can sell the out of state property and buy a bigger house for less.
Carnival of Personal Finance [ or More Free Publicity]
Financial Fruition is hosting the 52nd Carnival of Personal Finance and I get a mention! Check out How to Save Money on Shoes if you haven't already read it. Or better still, to save time I'll just tell you - run barefoot!
Paul's tips on negotiating are pretty good.
Paul's tips on negotiating are pretty good.
Carnival of Investing
I made the 26th Carnival of Investing. Check it out. It has several good posts.
The first post is about buying properties to become a millionaire. Quite a stellar approach! He's going to buy 5 properties at 200k each. He thinks he'll get an 8% yield on 4 of them which will net him $64k/yr. [This is of course after the houses are paid off].
The good thing about this approach is that rents are indexed for inflation, so if things become more expensive he'll get to raise the rents. The bad thing is that as time goes by, your return on equity decreases. Earning 8% on your 10 million dollars is fine, however if you have a lot less, you should strive to earn a lot more.
In some of my investments I've made 1500% in 6 months, others have yielded 1000% return in 18 months. Quite a lot have made 100% in less than a year. This is your cash on cash yield [which is what concerns you] and not the total yield of the investment. For example, assuming you buy a $200k house with $5k down and you sell it after 12 months and profit $40k, your yield is 800%. This beats the stock market anyday!
Of course when dealing with leverage, one must remember it cuts both ways. In a down market, you can be reduced from a millionaire to a pauper in a few years. Donald Trump is reported to have once said the difference between himself and a homeless person was that the homeless person's networth was higher by several hundred million dollars.[Of course, if you owe the bank several hundred million dollars, its the banks problem, not yours!]
The first post is about buying properties to become a millionaire. Quite a stellar approach! He's going to buy 5 properties at 200k each. He thinks he'll get an 8% yield on 4 of them which will net him $64k/yr. [This is of course after the houses are paid off].
The good thing about this approach is that rents are indexed for inflation, so if things become more expensive he'll get to raise the rents. The bad thing is that as time goes by, your return on equity decreases. Earning 8% on your 10 million dollars is fine, however if you have a lot less, you should strive to earn a lot more.
In some of my investments I've made 1500% in 6 months, others have yielded 1000% return in 18 months. Quite a lot have made 100% in less than a year. This is your cash on cash yield [which is what concerns you] and not the total yield of the investment. For example, assuming you buy a $200k house with $5k down and you sell it after 12 months and profit $40k, your yield is 800%. This beats the stock market anyday!
Of course when dealing with leverage, one must remember it cuts both ways. In a down market, you can be reduced from a millionaire to a pauper in a few years. Donald Trump is reported to have once said the difference between himself and a homeless person was that the homeless person's networth was higher by several hundred million dollars.[Of course, if you owe the bank several hundred million dollars, its the banks problem, not yours!]
I'm Back!
Got back from Salt Lake City late last night. Had a great time. Met several investors I know who invest in that market but live in Southern California. I went to check out one of my houses that is currently being built. The house next door is being resold for $295,000. Don't know if it'll sell for that price, but based on that price, my home should list for $275,000. I have it tied up at $205,000 so I'm really happy!.[Just because I theorectically have $70k equity in it doesn't mean I'll make $70k on it. There are closing costs and holding costs that eat into the profit].
Sunday I went to Rockport National Reserve which is about an hour from downtown Salt Lake City and tried my hand at driving a speed boat. It was a lot of fun. Also tried "the tube", which is a tiny dingy with handles that is tied to the boat. The was fun until it overturned and I got dunked in freezing cold water!
Don't you love tax deductible business trips!
Sunday I went to Rockport National Reserve which is about an hour from downtown Salt Lake City and tried my hand at driving a speed boat. It was a lot of fun. Also tried "the tube", which is a tiny dingy with handles that is tied to the boat. The was fun until it overturned and I got dunked in freezing cold water!
Don't you love tax deductible business trips!
Flying to Salt Lake City Tomorrow
Going to Salt Lake City tomorrow for the weekend. I have several investment properties out there and I've convinced some of my friends to buy there too. So we're going to hang out and make it a good tax-deductible trip! Ever since I read Robert Kiyosaki's Rich Dad
series of books, I've been dreaming of taking legitimate business deductions and trips.
I have several real estate, oil and a VOIP business going on in addition to my regular job, so I have quite a few business and investment related deductions that were not open to me a few years ago as a regular employee.
As a real estate investor, you also get to depreciate your houses to a cap of $25,000 against your regular W-2 income. If you invest in oil, there is no cap. If you invest $50,000 on december 31st in an oil well, you can write off 80-90% of it against your income in that year itself. Its a great legitimate tax shelter!
I love passive investments!
series of books, I've been dreaming of taking legitimate business deductions and trips.I have several real estate, oil and a VOIP business going on in addition to my regular job, so I have quite a few business and investment related deductions that were not open to me a few years ago as a regular employee.
As a real estate investor, you also get to depreciate your houses to a cap of $25,000 against your regular W-2 income. If you invest in oil, there is no cap. If you invest $50,000 on december 31st in an oil well, you can write off 80-90% of it against your income in that year itself. Its a great legitimate tax shelter!
I love passive investments!
Kendra Todd Seminar/Sales Pitch
Went to the local real estate seminar last night. The speaker was Kendra Todd, winner of the 3rd "Apprentice" TV show hosted by Donald Trump. She was there to promote her new book Risk And Grow Rich. Bob Bruss calls it a 10 out of 10 so it should be pretty good, however her seminar wasn't all that exciting. It was basically a sales pitch for her over-priced condo conversion in Pheonix,Arizona. She a 360 unit apartment complex for sale, with about 120 units going to investors at around 250k/unit. The rents were around 1000/mo. That market is pretty much done. Its on its last legs.
She quoted some statistics saying that 36% of all home sales were 2nd homes. She touted that as a good thing, however I see that as a negative. With raising interest rates, the number of buyers might dry up leaving a lot of people holding houses that they can't afford and can't sell either.
She was also promoting plane tours. Some of you may have heard of bus tours. Well she was taking groups of 30 investors on a plane tour. For $299, you fly from LAX to Pheonix and she shows you exclusive properties for investing in. By exclusive I think she means those 120 units in a 360 unit complex where the builder was throwing in 6 months with no mortgage payments.
She may be a really good sales person and much richer than me, but I don't think the stuff she was promoting was investment grade. I can find much better stuff on my own.
. She was there to promote her new book Risk And Grow Rich. Bob Bruss calls it a 10 out of 10 so it should be pretty good, however her seminar wasn't all that exciting. It was basically a sales pitch for her over-priced condo conversion in Pheonix,Arizona. She a 360 unit apartment complex for sale, with about 120 units going to investors at around 250k/unit. The rents were around 1000/mo. That market is pretty much done. Its on its last legs.She quoted some statistics saying that 36% of all home sales were 2nd homes. She touted that as a good thing, however I see that as a negative. With raising interest rates, the number of buyers might dry up leaving a lot of people holding houses that they can't afford and can't sell either.
She was also promoting plane tours. Some of you may have heard of bus tours. Well she was taking groups of 30 investors on a plane tour. For $299, you fly from LAX to Pheonix and she shows you exclusive properties for investing in. By exclusive I think she means those 120 units in a 360 unit complex where the builder was throwing in 6 months with no mortgage payments.
She may be a really good sales person and much richer than me, but I don't think the stuff she was promoting was investment grade. I can find much better stuff on my own.
Companies ubsidize Purchase Of Hybrid Cars
Bank of America has joined Google in offering a cash incentive to employees who purchase hybrid cars. I wonder why?
I also wonder what the tax implications of this are. Is it counted as regular income? The government already offers a tax credit if you buy one of these things. So thats a double bonus for some lucky foik.
I also wonder what the tax implications of this are. Is it counted as regular income? The government already offers a tax credit if you buy one of these things. So thats a double bonus for some lucky foik.
Variable Paid Forwards
Uhni (Ultra High Network Individual) of LiveJournal has a great post on VPFs. I had to read it about 5 times before I got the hang of it.
If you have a million dollars worth of stock and want to sell a portion to use the money, you can implement a VPF to defer any taxes. Its pretty complex so grab a strong cup of joe before you start.[and a bottle of asprin].
If you have a million dollars worth of stock and want to sell a portion to use the money, you can implement a VPF to defer any taxes. Its pretty complex so grab a strong cup of joe before you start.[and a bottle of asprin].
One interesting tool made available to high net worth individuals is called a Variable Paid Forward, or VPF. Their intended use is to take cash out of your current investment that for some reason you may not want to sell right away.
The way they work is to use a collar options strategy to guarantee a future value of the investment. Since the value is guaranteed, the brokerage is comfortable loaning you the equivalent present value at a risk-free interest rate.
A collar means that you're buying a protective put, which protects your investment against future loss. You are buying this insurance, and to offset the cost, you can write a call option, which puts a maximum price at which you can sell. In effect, for roughly no cost other than fees, you're guaranteeing that your investment won't lose value; however, if it goes above the maximum price set by the call, you miss out on those gains.
Because you're guaranteed that your investment has a minimum future value, there is no risk that you won't be able to pay off a loan at that amount. Since there is no risk, the interest rate on the loan should have no risk premium; it is a risk-free interest rate.
How to Save Money on Shoes
Ever gone to buy a pair of sneakers and find the designs you like all cost a $150?
Well now theres a great way to save on them. Just walk barefoot!
The wall street journal reports that
Of course, NIKE has to jump on the bandwagon and has come out with a shoe that mimicks training barefoot. [That shoe will probably be $200!].
Well now theres a great way to save on them. Just walk barefoot!
The wall street journal reports that
Some experts now believe that most athletic shoes, with their inflexible soles, structured sides and super-cushioned inserts keep feet so restricted that they may actually be making your feet lazy, weak and more prone to injury. As a result, barefoot training is gaining more attention among coaches, personal trainers and runners.
While exercising without shoes may sound painful, the idea is that your feet need a workout, too. Proponents believe running barefoot changes a runner's form and body mechanics to prevent some common athletic injuries.
One series of studies from Canadian researchers concluded that heavily cushioned shoes were more likely to cause injury than simpler shoes. They also concluded that more expensive athletic shoes accounted for twice as many injuries as cheaper shoes. The data aren't conclusive. It may be that buyers of expensive shoes are more injury prone or more active, and therefore more likely to sustain injuries. A summary of the data on barefoot training can be found at www.sportsci.org/jour/0103/mw.htm.
Of course, NIKE has to jump on the bandwagon and has come out with a shoe that mimicks training barefoot. [That shoe will probably be $200!].
Audio Books Rock!
A few weekends ago, the wife and I went down to Mexico for a day trip with another investor couple. Had a great time and had great seafood. On the way back, which was a 4 hour drive because of the wait involved in crossing the border, we listened to the audio book version ofAdventure Capitalist : The Ultimate Investor's Road Trip.
Its the story of an investor who drove around the world in a mercedes roadster and documented his journey. Its incredibly interesting and teaches you about planning for road trips and of course investing in foreign markets.
I wasn't a big fan of audio books before this, but now I'm sold. They're especially useful on long trips and help keep you calm during traffic jams. I also recommend going on long trips with investors too!
.Its the story of an investor who drove around the world in a mercedes roadster and documented his journey. Its incredibly interesting and teaches you about planning for road trips and of course investing in foreign markets.
I wasn't a big fan of audio books before this, but now I'm sold. They're especially useful on long trips and help keep you calm during traffic jams. I also recommend going on long trips with investors too!
Making Zillions
Once in a while I'll go to the local barnes and nobles and read a couple of books over a 6 hour period. Last night was one of those days. I actually went to check out a programming book. Right next to the computer isle was a table of personal finance books. One book caught my attention. I spent 2 hours and skimmed the entire book.
Its called Zero to Zillionaire.
It starts off explaining how having a wealthy atracting mindset is of immense importance. If you have hangups about money and charging people for services, you'll never be able to make or keep money. Also had a nice analogy about the different types of people and ancient sea voyages, dividing people into 3 types - merchants, crew members and passengers. The merchants are investors and business owners who take all the risks, the crew members are employees doing what they're told, and the passengers[and stowaways] are along for the ride but do as they please. Its an easy read and falls in the "psychology of investing/wealth building" category. I ilked it much more than the millionaire mindset series by T. Harv Ecker.
I believe having a winning mindset really does attract wealth. Everything in life is 90% mental. Whether you're running a race or investing. If you don't have the mental strength or the right mindset you don't do the things that are vital to achieving success.
Its called Zero to Zillionaire
.It starts off explaining how having a wealthy atracting mindset is of immense importance. If you have hangups about money and charging people for services, you'll never be able to make or keep money. Also had a nice analogy about the different types of people and ancient sea voyages, dividing people into 3 types - merchants, crew members and passengers. The merchants are investors and business owners who take all the risks, the crew members are employees doing what they're told, and the passengers[and stowaways] are along for the ride but do as they please. Its an easy read and falls in the "psychology of investing/wealth building" category. I ilked it much more than the millionaire mindset series by T. Harv Ecker.
I believe having a winning mindset really does attract wealth. Everything in life is 90% mental. Whether you're running a race or investing. If you don't have the mental strength or the right mindset you don't do the things that are vital to achieving success.
10 Questions to ask a Financial Planner
Got a call from a Financial Planner today. I had attended a radio-station sponsored event hosted by the famous marketing expert, Janet Switzer several months ago and now I was on the mailing list for affiliated radio show hosts.
This financial planner is co-host of a radio show called Wealth Building Wednesday. I don't have anything against warm calls but how do I know if he's any good and if he can actually help me. Luckily I pulled out my questionaire for choosing a financial planner.
10 Questions to ask a Financial Planner
1. What experience do you have?
Find out how long the planner has been in practice and the number and types of companies with which she has been associated. Ask the planner to briefly describe her work experience and how it relates to her current practice. Choose a financial planner who has experience counseling individuals on their financial needs.
2. What are your qualifications?
The term "financial planner" is used by many financial professionals. Ask the planner what qualifies him to offer financial planning advice and whether he is recognized as a CERTIFIED FINANCIAL PLANNER™ professional or CFP(r) practitioner, a Certified Public Accountant/ Personal Financial Specialist (CPA/PFS), or a Chartered Financial Consultant (ChFC). Look for a planner who has proven experience in financial planning topics such as insurance, tax planning, investments, estate planning or retirement planning. Determine what steps the planner takes to stay current with changes and developments in the financial planning field. If the planner holds a financial planning designation or certification, check on his background with CFP Board or other relevant professional organizations.
3. What services do you offer?
The services a financial planner offers depend on a number of factors including credentials, licenses and areas of expertise. Generally, financial planners cannot sell insurance or securities products such as mutual funds or stocks without the proper licenses, or give investment advice unless registered with state or Federal authorities. Some planners offer financial planning advice on a range of topics but do not sell financial products. Others may provide advice only in specific areas such as estate planning or on tax matters.
4. What is your approach to financial planning?
Ask the financial planner about the type of clients and financial situations she typically likes to work with. Some planners prefer to develop one plan by bringing together allof your financial goals. Others provide advice on specific areas, as needed. Make sure the planner's viewpoint on investing is not too cautious or overly aggressive for you. Some planners require you to have a certain net worth before offering services. Find out if the planner will carry out the financial recommendations developed for you or refer you to others who will do so.
5. Will you be the only person working with me?
The financial planner may work with you himself or have others in the office assist him. You may want to meet everyone who will be working with you. If the planner works with professionals outside his own practice (such as attorneys, insurance agents or tax specialists) to develop or carry out financial planning recommendations, get a list of their names to check on their backgrounds.
6. How will I pay for your services?
As part of your financial planning agreement, the financial planner should clearly tell you in writing how she will be paid for the services to be provided.
Planners can be paid in several ways:
* A salary paid by the company for which the planner works. The planner's employer receives payment from you or others, either in fees or commissions, in order to pay the planner's salary.
* Fees based on an hourly rate, a flat rate, or on a percentage of your assets and/or income.
* Commissions paid by a third party from the products sold to you to carry out the financial planning recommendations. Commissions are usually a percentage of the amount you invest in a product.
* A combination of fees and commissions whereby fees are charged for the amount of work done to develop financial planning recommendations and commissions are received from any products sold. In addition, some planners may offset some portion of the fees you pay if they receive commissions for carrying out their recommendations.
7. How much do you typically charge?
While the amount you pay the planner will depend on your particular needs, the financial planner should be able to provide you with an estimate of possible costs based on the work to be performed. Such costs should include the planner's hourly rates or flat fees or the percentage he would receive as commission on products you may purchase as part of the financial planning recommendations.
8. Could anyone besides me benefit from your recommendations?
Some business relationships or partnerships that a planner has could affect her professional judgment while working with you, inhibiting the planner from acting in your best interest. Ask the planner to provide you with a description of her conflicts of interest in writing. For example, financial planners who sell insurance policies, securities or mutual funds have a business relationship with the companies that provide these financial products. The planner may also have relationships or partnerships that should be disclosed to you, such as business she receives for referring you to an insurance agent, accountant or attorney for implementation of planning suggestions.
9. Have you ever been publicly disciplined for any unlawful or unethical actions in your professional career?
Several government and professional regulatory organizations, such as the National Association of Securities Dealers (NASD), your state insurance and securities departments, and CFP Board keep records on the disciplinary history of financial planners and advisers. Ask what organizations the planner is regulated by and contact these groups to conduct a background check. (See listing at right.) All financial planners who have registered as investment advisers with the Securities and Exchange Commission or state securities agencies, or who are associated with a company that is registered as an investment adviser, must be able to provide you with a disclosure form called Form ADV Part II or the state equivalent of that form.
10. Can I have it in writing?
Ask the planner to provide you with a written agreement that details the services that will be provided. Keep this document in your files for future reference.
several months ago and now I was on the mailing list for affiliated radio show hosts. This financial planner is co-host of a radio show called Wealth Building Wednesday. I don't have anything against warm calls but how do I know if he's any good and if he can actually help me. Luckily I pulled out my questionaire for choosing a financial planner.
10 Questions to ask a Financial Planner
1. What experience do you have?
Find out how long the planner has been in practice and the number and types of companies with which she has been associated. Ask the planner to briefly describe her work experience and how it relates to her current practice. Choose a financial planner who has experience counseling individuals on their financial needs.
2. What are your qualifications?
The term "financial planner" is used by many financial professionals. Ask the planner what qualifies him to offer financial planning advice and whether he is recognized as a CERTIFIED FINANCIAL PLANNER™ professional or CFP(r) practitioner, a Certified Public Accountant/ Personal Financial Specialist (CPA/PFS), or a Chartered Financial Consultant (ChFC). Look for a planner who has proven experience in financial planning topics such as insurance, tax planning, investments, estate planning or retirement planning. Determine what steps the planner takes to stay current with changes and developments in the financial planning field. If the planner holds a financial planning designation or certification, check on his background with CFP Board or other relevant professional organizations.
3. What services do you offer?
The services a financial planner offers depend on a number of factors including credentials, licenses and areas of expertise. Generally, financial planners cannot sell insurance or securities products such as mutual funds or stocks without the proper licenses, or give investment advice unless registered with state or Federal authorities. Some planners offer financial planning advice on a range of topics but do not sell financial products. Others may provide advice only in specific areas such as estate planning or on tax matters.
4. What is your approach to financial planning?
Ask the financial planner about the type of clients and financial situations she typically likes to work with. Some planners prefer to develop one plan by bringing together allof your financial goals. Others provide advice on specific areas, as needed. Make sure the planner's viewpoint on investing is not too cautious or overly aggressive for you. Some planners require you to have a certain net worth before offering services. Find out if the planner will carry out the financial recommendations developed for you or refer you to others who will do so.
5. Will you be the only person working with me?
The financial planner may work with you himself or have others in the office assist him. You may want to meet everyone who will be working with you. If the planner works with professionals outside his own practice (such as attorneys, insurance agents or tax specialists) to develop or carry out financial planning recommendations, get a list of their names to check on their backgrounds.
6. How will I pay for your services?
As part of your financial planning agreement, the financial planner should clearly tell you in writing how she will be paid for the services to be provided.
Planners can be paid in several ways:
* A salary paid by the company for which the planner works. The planner's employer receives payment from you or others, either in fees or commissions, in order to pay the planner's salary.
* Fees based on an hourly rate, a flat rate, or on a percentage of your assets and/or income.
* Commissions paid by a third party from the products sold to you to carry out the financial planning recommendations. Commissions are usually a percentage of the amount you invest in a product.
* A combination of fees and commissions whereby fees are charged for the amount of work done to develop financial planning recommendations and commissions are received from any products sold. In addition, some planners may offset some portion of the fees you pay if they receive commissions for carrying out their recommendations.
7. How much do you typically charge?
While the amount you pay the planner will depend on your particular needs, the financial planner should be able to provide you with an estimate of possible costs based on the work to be performed. Such costs should include the planner's hourly rates or flat fees or the percentage he would receive as commission on products you may purchase as part of the financial planning recommendations.
8. Could anyone besides me benefit from your recommendations?
Some business relationships or partnerships that a planner has could affect her professional judgment while working with you, inhibiting the planner from acting in your best interest. Ask the planner to provide you with a description of her conflicts of interest in writing. For example, financial planners who sell insurance policies, securities or mutual funds have a business relationship with the companies that provide these financial products. The planner may also have relationships or partnerships that should be disclosed to you, such as business she receives for referring you to an insurance agent, accountant or attorney for implementation of planning suggestions.
9. Have you ever been publicly disciplined for any unlawful or unethical actions in your professional career?
Several government and professional regulatory organizations, such as the National Association of Securities Dealers (NASD), your state insurance and securities departments, and CFP Board keep records on the disciplinary history of financial planners and advisers. Ask what organizations the planner is regulated by and contact these groups to conduct a background check. (See listing at right.) All financial planners who have registered as investment advisers with the Securities and Exchange Commission or state securities agencies, or who are associated with a company that is registered as an investment adviser, must be able to provide you with a disclosure form called Form ADV Part II or the state equivalent of that form.
10. Can I have it in writing?
Ask the planner to provide you with a written agreement that details the services that will be provided. Keep this document in your files for future reference.
Pitfalls of Private Annuity Trusts
The WSJ has an excellent article on PATs or Private Annuity Trusts. Yet another reason to subscribe to it.
As soon as I fully understand how they work, I'll write a post on PATs myself. If anyone wants the entire article, email me at emptyspacesinc@gmail.com .
Critics -- and even some promoters -- say that the private annuity trust strategy has downsides and isn't for everyone. "Contrary to the claims of promoters, it is a very risky transaction and in any event it will likely cause you to pay more tax than had you not done the transaction in the first place," says Atlanta tax lawyer Kevin McGrath, who recently wrote an article critical of the tactic in the tax journal "Tax Notes."
For one, a private annuity trust doesn't eliminate capital-gains taxes; it just defers them. On each annuity payment, you'll owe taxes on both capital gains as well as ordinary income, which is taxed at a higher rate. And if you outlive your life expectancy, all of the annuity payments beyond that point will be taxed at ordinary income rates, according to tax rules. Also, the trust itself has to pay taxes on its earnings over the years, depending on how the assets inside it are invested.
Another caveat: Because these trusts are irrevocable, once you sell your property, you don't have any direct control over how the proceeds are invested. Instead, a separate trustee manages the assets. You also can't simply invade the trust to get more money beyond the annuity payments.
If you get pitched a private annuity trust, it's smart to have an independent lawyer and tax adviser carefully study the transaction to make sure that it passes legal muster, and to model projections on whether the arrangement works for you, depending on your age and income needs.
As soon as I fully understand how they work, I'll write a post on PATs myself. If anyone wants the entire article, email me at emptyspacesinc@gmail.com .
Selecting a Brokerage account
The Wall Street Journal had a nice article on Opening Your First Investment Account.
Here are some related posts:
had a nice article on Opening Your First Investment Account.- Don't just open your account with anyone offering you a free IPOD.
Although free IPOD's are great, its not necessarily in your best interest. - Figure out how much hand-holding you require.
Do you need to go full-service[full commission] or discount brokerage? - Will you be buying securities or mutual funds?
Most brokerages charge different amounts for these and some are cheaper for one while being more expensive for the other. - Are there account minimums or extras for opening an account?
Basically look for junk fees.
Here are some related posts:
Vonage Does An About Turn
The Wall Street Journal today reported that Vonage has denied all rumors that its going to let its customers off the hook if they no longer want their lousy shares!
This is quite a change from its now alleged stance a couple of days ago. This will just serve to alienate its customers even more. Wonder how this rumor even got started? Let me paraphrase the good ol WSJ
today reported that Vonage has denied all rumors that its going to let its customers off the hook if they no longer want their lousy shares!This is quite a change from its now alleged stance a couple of days ago. This will just serve to alienate its customers even more. Wonder how this rumor even got started? Let me paraphrase the good ol WSJ
But CNBC yesterday reported Vonage issued the network a statement on Sunday stating that it wanted to avoid "alienating" its customers. If "certain" customers who refused to buy the shares didn't pay, Vonage expects "to repurchase shares from the underwriters if necessary," CNBC reported.So I guess CNBC started it.
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