My 1st Million At 33 – yes, you can do it too

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  • Archive for June, 2012

    Dividend cuts in energy royalty companies

    Posted by Frugal on 15th June 2012

    Anticipating the slowdown in economy, I’ve stayed away most of the energy-related companies, including these high dividend companies. High dividends are good only if they last, and with natural gas price falling to an extremely depressed level, ERF announced a 50% cut in its monthly dividend a couple of days ago.

    With this announcement out, and possibly other related companies (PGH, PWE, PVX, etc) to follow, I think it’s worth to take a look at them now. The summer/fall is seasonally bad for stocks, so you don’t want to get too aggressive, but stay patient.

    High dividends (or high potential return) always equal to high risks. This is one of the very few golden rules in investing. Tread carefully.

    Posted in Stock Market | Comments Off

    I bought my second real estate property

    Posted by Frugal on 3rd June 2012

    Putting the money at where my mouth is, I bought my second real estate property (besides my primary residence). I actually bought several months ago, and just in a couple of months, the real estate has gone up by about 5% to 12%. Based on the speed of rally, it is obvious to me that the secular bear market in housing is not over. Hope springs eternal. As long as the participants are still full of hopes, the bear market won’t be over.

    Based on the current conservative valuation of my second property, I’m already at least $40K in positive territory. I always marked everything including real estate to market prices, but in this case, I will choose to be conservative due to my long-term bearish view on housing market. My first real estate property which gained me $300K at the housing peak has been marked down by about 45% to the current market price, including a 5% off that I would need to pay real estate agents if I ever decide to sell it. I obviously should have sold it near the peak, but let’s not go there because it involved some unpleasant family feuds. Sometimes, you not only need to out-smart the market, but also need to convince your family as well.

    I have been extremely busy lately, due to publishing of my Kindle book, and also becoming a landlord for the first time. Running through credit checks on various applicants, I shake my head on how financially fragile these potential tenants are. I wish more people would take my advice and live under their means.

    My property is rented out already, and I’m only about cash flow even on a 30-year mortgage, due to the fact that I have cashed out before and refinanced several times. My tenants will be paying down the principal for me, and so the net profit would grow as the principal is paid down.

    If you’re still sitting on the sideline, at least you should wait till the slower winter season. Hopefully, prices will pull back somewhat at that time. Have patience. Housing market won’t come back before year 2026 (or 2006+20 years for a bubble to deflate). Every time I say this, people won’t believe in me, and would shout at me, but we will see. If you buy any houses, make sure you are positive monthly in respect to equivalent rental.

    Of course, the lowest bottom of the housing market in the nominal price will be different from the bottom priced in the inflation-adjusted price, and will be different as well as in the bottom in terms of monthly payment. Ideally, when you buy your home at mortgage rate of 8% instead of 4% now, your housing price should be low, while your monthly payment will be high (assuming that you can still get a mortgage).

    Posted in Real Estate | Comments Off

    Get your investing thesis correct

    Posted by Frugal on 1st June 2012

    Today market sells off big time (again), and it’s no surprise.

    I don’t understand why some pundits calling to get into energy and precious metal shares simultaneously. On an intermediate term basis, the two sectors would be out-of-sync more often than not. If you are bullish on energy sector, then you are bullish on the economy. If you are bullish on the precious metal shares, then you are bearish on the economy. On a longer term basis, one can be bullish on both, if one is bearish on the US dollar.

    I have not been touching much of the energy sector shares, precisely because I have been bearish on the economy on the longer term horizon. It’s interesting to observe how these two sectors going out of phase with each other. In this environment, I believe that precious metal (PM) sector serves as a leading indicator on the way up. It gives you an early hint on QE3.

    The previous market cycle seems to have completed. We will have a new up cycle, with today’s hints from PM sector. Now the only question is how low will this market go. But I sure don’t want to catch a falling knife here.

    If you ask me, my best guess is that market may short-term bottom here with a climatic sell-off. It would rally back towards moving average. However, starting in mid-August for many about two months, it’s best to stay on the sideline. Euro crisis is simply not going away. Remember sub-prime contagion? The finale may not come for another two years (2014), and in the meanwhile, markets will go yo-yo before things get resolved if at all.

    Posted in Market Pulses | Comments Off