Monday, April 14, 2008
Property can by quite a forgiving investment, just hold it long enough and it'll go up, as long as it's in a reasonable place.
The Pro's of Property
High leverage ability
Secure funding (loan doesn't reduce like margin loans)
Easier access to funding
Can increase value and rent by improvements to place (within parameters for area)
Control of asset
Can shop around different lenders
Can re-finance to pull money out
Can negative gear against tax
The Con's of Property
High entry and exits costs
Length of time to sell (liquidity)
Can't increase value of place above surrounding area
At market forces for rent, and interest rates
Ongoing costs can be high (rates, insurence ect...)
Property managers take a high % of rent
For the next Property I buy I'm gunna do what I have never done before and search for the a great buy, hopefully a development potential site, that price hasn't been already factored into it. Or a cash flow positive place, yes there are out there, just takes alot of looking and imaginative think to create one.
I think in future property whilst still being important, it will be the base for me to secure funding for other investments, rather than being everything. I shall always be in it, as well as other markets
Saturday, April 12, 2008
This is basically accepted as a sound investment strategy and for the most part I agree. However it does have one down side in that, If one or two assets boom and make incredible returns, the benefit to your overall portfolio is not that much. That's the risk you take in return for limited loses. Diversification averages the returns both in good times and bad times.
For the average person who has limited knowledge/time/interest in investments this is a excellent strategy and one I highly recommend. In the likes of ETF's or LIC's is great.
For example if you own 20 stocks, and 5% of your portfolio in each. One has a return of 200% for the year. It only affects your total portfolio by 15%.
What I do is, what I call focused or limited diversification (I don't know if I made that up or read it somewhere) I try to limit the amount of stocks I have, and put enough money into the ones I believe will do well, to actually make a difference to me.
If I thought XYZ company was about to boom, and I bought $500 worth of stock, and it returned 100% for the year. I would have $1000 . Whilst this is great and is a fantastic return, the difference that money can make to my life is minimal. However if I put 50% of my portfolio in it the difference to my life is huge.
I try to limited myself to 6-8 stocks and put enough money in to each one that it makes a difference to me. However I do ALLOT of research and reading before making investments and buy with a set period of time for that investment. That is my way of reducing the risk of loss.
That is the moment that as a individual, it is most important to fight through, to say 'I will not surrender' these moments is what makes us grow and become stronger or destroy us as a person. But it's at the darkest places in our lives it's the hardest to ever see a positive end.
It is only in hind sight that we later see that our darkest moment was also the closest moment in time to a new dawn. When life flowed back the other direction as it always does.
This blog is about my investing and finance so I'll focus on that aspect. At the moment interest rates are rising, share markets are tanking. Our living expenses are rising. Things are starting to look tough. It would be easy to sell up and remove these problems and take a loss. There are always problems in any business or endeavor, the challenge is to see through them and find solutions, which are always there.
But right now I look at all these different options and ways I could go. As different markets tank, and my maturity as a investor continues, I see so many opportunities available but I have no cash. In the words of a young Warren Buffet "I have more ideas than cash" So which way do I turn, what do I do???
And here's what I keep coming back to STICK TO THE PLAN, I've done things in last 8 months for a reason, according to a plan. Mostly which is in my head, but allot is written down. One thing my research and common sense tells me, is that jumping from one thing to the next is the easiest way of achieving nothing.
So sometimes the hardest thing to do, is to see all these opportunities and to do nothing about them. Mainly because I have no cash at the moment. But also because I have a plan with what I want to do and how I will get there. I also want to avoid over diversification, having money spread to thin. I do what I call 'focused diversification' (I'll write on that later)
Controlling my emotions and impulses when it comes to investing is the greatest challenge to wealth creation I face. Once I can truly master this I will be ready for the next level.
Sometimes I wonder is this blog to vague or cryptic. My ideas just sort of come to me, and they make sense to me when I'm writing it. But I wonder do they make sense to others???
Friday, April 4, 2008
Do you have more time than money or more money than time?? Do you like doing research or getting some else to do it?? What sort of returns are you happy to accept?
My view is that I like to remove as many people as possible between me and my investments. The reason is that the more people taking a small cut of your money the less left for you. Here's a worst case scenario;
Me -> Financial Planner -> Manage Fund Company -> Managers of Fund -> Tax Man-> Asset
All those people are earning some income from you. You can never remove the Tax man from it, but you can do things to reduce his cut.
I like to have ;
Me -----> Tax Man ----> Asset
Simply more returns for me, however this means I'm responsible for the total management of the asset. When I do have people working for me I make sure I get value from them. And I like to pay them direct so I'm aware of what they cost. Managed Funds and Financial Planners there costs are generally hidden from you or hard to fathom. I'm not against getting any help, far from it. Just that I like to know what I'm dealing with.
So are all managed funds bad, NO, however I prefer ETF's (Exchange Traded Funds) or LIC's (Listed Investment Companies) because of the much low fee's . I would never invest in a managed fund unless it could give me exposure I couldn't easily get.
As you may have guessed I'm a sort of hands on investor. I enjoy the process and I get hints and tips from all over the place. So I'm not just sitting in my office spinning ideas out of my head, 98% of the time I'm re-using some else ideas and thoughts, making them fit my needs. Only time will tell if I'm full of shit or there's something to what I think!
Thursday, April 3, 2008
Equinox Minerals (EQN on the ASX) it has a massive copper mine about to commence production later this year. It has a projected 37 year life. This is what i like investing in. The transition from cash burning developer to actual producer. It should be in full production sometime in early 09. The EPS and hence the share price should go up allot, my prediction is in 2-3 years it be somewhere between $15-$22. Or it mostly likely be subject of a takeover. It's currently trading at $5.10 - $5.50.Another one is Aim Resources (AIM) they have a zinc mine in Africa about to go into production this year, and full production next year. They are currently at about 0.10c. My prediction is that in 2-3 years they should be somewhere in the 0.30c - $1.50 range. Huge upside.
Another one is IBA Health (IBA) they are a e-health company that have just completed a company defining take over . They have long term secure earnings in a growth industry. We are all getting older . They are currently trading on a very low PE, because of the market volatility and the market is waiting to see how the company performs.
These are 3 of the 7 companies in my high growth portfolio...
Am I an expert?? NO! Am I guaranteed results? NO!
Ambitious, Brave, Foolhardy, Stupid, Dumb, Brilliant, well researched, Confidant and just plain dreaming are just some of the things I say to myself.
Life is a journey, the only thing guaranteed is that if I don't try, I won't succeed!
The best of the best scenario is that this portfolio with be worth $1.2M+ in 2-3 years. However back in the land of reality, I'm am quite confidant that I will not lose any money over the entire portfolio. If one of them is successful I should come out even, more than one I'm ahead. If it gets to pay out my house FANTASTIC!! It beats paying off a house over 30 years, and being a working slave!!
Wednesday, April 2, 2008
If I was only in property, the booms are usually 5-7 years apart. That is quite some time to wait. Where as the share market can give you exposure to most asset classes around the world from one place.
In the first box -
This is the best source of leverage and secure lending against.
Pick up quality property's at good prices
My wife wants to get into renovating/building/developing
Try never to sell
The second Box -
My wife's share portfolio, with companies that provided good long term secure earnings that pay out increasing dividends year after year.
The third box -
My High growth share portfolio, invested in companies with a proven resource or service that is for a large increase in sales.
Sell after about 2-3 years
The fourth Box -
This bit is abit more fluid not really decided on the format yet, but am leaning towards limited options trading to provide cash flow.
Am a couple of years and alot of research and learning away from starting that.
The point of having a few different boxes, one should be chugging along, one maybe struggling , maybe one booming. Over the years I can pick and choose which to take a income on from that year. It also provides synergy to back each other up, and can transfer funds between, if required or opportunities arise.
Tuesday, April 1, 2008
It's the single greatest tool for creating wealth, with the exception of your own financial education. Nothing is more important than increasing your knowledge base. Once you have the foundations of knowledge. Leverage can assist you to jump to the next level.
So what is it??
Leverage in financial terms means using given resources in such a way that the potential positive or negative outcome is magnified.
It is so much more than just borrowing money. Leverage is using other peoples money (OPM), other peoples time (OPT), other peoples knowledge (OPK)
We can use this is so many ways, I'll mention just a few;
- Use a Property Manager to manage your Investment properties
- Use a buyer's Agent to find quality investment property's
- Use a good accountant to get maximum tax benefits
- Read books to acquire other peoples experience
- Network with like minded people to exchange other ideas
- Use a good stock broker to find opportunity's in share market
- Borrowing money to fund investments
There are many many people out there that would love nothing better than to separate you from your money. Be a good custodian of your wealth and it will flourish. Hand over responsibility to other's and it will flitter away.
Wealth is constantly being re-distributed from the dumb, silly and uneducated to the smart operators and financially knowledgeable people.