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

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  • Archive for the 'Investing' Category

    Recent market updates

    Posted by Frugal on 27th June 2013

    Many things have changed a lot since just three or four months ago. I’m going to keep it brief here.
    1. Stock market is a hold or even a short term sell. Should add more on pullback.
    2. Real estate is a hold, changed from a buy. Only add if ROI is bigger than the mortgage rate. The buy vs rent decision is very hard at this point, because most people won’t sell in less than 5 years. The short-term bottom is definitely behind us, but I’m not too sure about longer term.
    3. Gold is a trading buy. Scale in gradually if you want to buy. The short-term bottom should be just around the corner, but even if you miss the bottom by one day, it could cost you a lot. You should probably trade it out once it bounce.
    4. Bond is a sell. I haven’t held bonds for years (and I was wrong). The interest rates kept going lower and lower. Now with QE tapering coming(?), bonds have sold off and mortgage rates have risen to put a stop on the housing market. It’s hard to imagine that US interest rate would go back to the recent low from last year, but I was wrong on this for quite some time. If US becomes like Japan, then it’s definitely possible that interest rates will go lower. The best way for regular folks to play this is to lock the mortgage rate for longer term, and keep doing zero-point zero-fee refinancing whenever the rate drops. I’ve locked two of my loans close to the lowest points (just about 1/8 from the lowest). That’s the best way to participate.
    5. Bitcoin? Bitcoin is a scam, just like any other un-backed currencies. But it doesn’t matter however whether it’s backed or not backed by some assets. The only thing that matters is whether people are willing to continue to value Bitcoin, and my answer is a YES. Unless government totally shuts it down, I think Bitcoin is going stay around. By the way, not all virtual currencies are like Bitcoin. For example, OpenCoin is a scam among scams, despite having Google & Marc Andreesen behind it. I think OpenCoin will go down to the drain, simply because it’s just NOT an open standard. You just can’t have the cake, and eat it too, giving yourself billions of monopoly money, and expect others to exchange real money with you.

    Posted in Market Pulses | Comments Off

    My rental portfolio

    Posted by Frugal on 23rd May 2013

    Housing market in most area of the California has experienced 15% to 30% price increase in just the last year. I have bought about 1.3 million worth of real estate in the last year (through mortgage leverage), and caught onto the ride. I am managing all of five rental properties myself. To get everything fixed up and rented is quite a lot of work. My real estate investment portfolio brings in about $60K income (before mortgage interest and depreciation deduction). The actual rental income however is less, due to all the mortgage interests that I need to pay.

    After the big rise in the housing market, it’s close to impossible to find any investment property that will give you an ROI of 6%. Even for what I bought, the average return was not more than 6%. However, if I didn’t lower my ROI target a little bit, I wouldn’t be sitting on several hundreds of thousands from capital gain right now. I didn’t expect the price to rise so quickly. I’m still shopping for deals but it’s about 1 in 100 homes that you may find a deal, and possibly 1 out of 50 deals you may get. So the chance is about 0.2% or less for you to actually get some deal. I go through about 100 listings online myself on a daily basis. That obviously take effort and time. The fact is that if there is a deal, your real estate agent would buy it before you do. So either you find them yourself, or you don’t. Nobody is going to give away something to you.

    Even if you don’t have a lot of money, you can still invest in real estate. My smallest acquisition was just $60K, and the ROI is 10.1%. Obviously far better than 1% for the idle cash in the bank.

    What makes real estate investment better than other investment besides its stability and leverage? What I’ve learned from sifting through tens of thousands of homes is that real estate market is not an efficient market, and there are always deals that are priced below-market. If you try often and hard enough, those are some potential gains that you can get. Your competitions are going to be as crazy as you are. 99.5% of the good deals that I found get sold in the first two days, if not the first day. This is not a game for the guys who sit back and relax. If you don’t make a move, somebody else will.

    Posted in Real Estate | Comments Off

    Stocks may pull back, but will break new high

    Posted by Frugal on 12th March 2013

    As I have said last year, stocks will be going up. It’s not going to be a triple top formation on S&P500 as some technicians are saying. It will be a solid new high. In general however, the volatility of the market will still be big, meaning that occasionally, the pullback can be as much as 10% if not more. I look forward to those pullbacks to increase my stake.

    I believe the housing bear market that started in 2007 is still with us despite the recent big increase of 10% to 25% in various local markets. Yes, I just bought 4 homes, but that’s going to be just a trade. Economy will continue to be tepid, due to state/city government cut back and international bond market instability. I don’t know what all these talks on QE ending this year are about. As I see it, Fed won’t be raising interest rate nor ending QE this year, possibly the entire 2014. The earliest that I can see is early 2015, and it will be baby steps. I think no more than 3 steps will be applied before the end of 2016. Eventually bond market vigilantes will be back, and Fed will lose the control of the interest rates (if not already).

    Posted in Stock Market | Comments Off

    I bought 4 homes in the last 9 months

    Posted by Frugal on 6th February 2013

    Housing market has temporarily bottomed last year. Chasing up the market, I bid on probably over 50 homes, and I got 4. Basically all of the homes that I put in a bid are sold within the very first week. Some homes I bid with all cash over the listing price in the very first 30 minutes, and I still couldn’t get them. Those that get sold in the first hour appeared to be structured illegally by the listing agents as insider deals.

    I have been so insanely busy with everything. It takes so much more than just cold cash to get the homes. Markets are hot, and the listing agents are kings. Most of the time, if I can get a return call from the listing agent, I call that a good success already.

    I will detail the housing market strategy in the second part of my eBook, but for now, I’m just too busy to write it up.

    All of the homes that I bought are basically in-the-money on the first day, if not a good 15% profit. I actually only bought “3″ homes, because two of the four homes that I bought, I got a 50:50 partner who was lucky to ride up the housing market with more than $70K profit with me already. I had to get a partner because I didn’t have 1.5 million cash in the bank to bid on every terrific deal without financing.

    I used to dislike housing flippers, but I will become one by buying these homes. After seeing how this lawless country is, with all the Wallstreet people not even indicted, and all those “home” owners or rather loan mowers who signed with perjury on their loan docs, still squatting in homes for free, I have to say that I’m disappointed about ethics in general. For now, I’m just going to grab the profits if they exist.

    I have a lofty goal of donating at least half a million in my lifetime for charitable causes. I really would love to donate one million, but I will be realistic for now, and set my goal to $500K. It’s a lot of money, and I wish I could reach my goal. And there is no other way to reach my goal besides by becoming rich. Actually, let me take it back. It’s not me donating any money, but rather I’m just “re-distributing” the money from God to the poor.

    Posted in Real Estate | Comments Off

    Fiscal Cliff? Don’t sell due to the headline news

    Posted by Frugal on 28th November 2012

    As a general rule of thumb, whatever news that is in the headline news is not new anymore (for stock trading). In the USA especially, the traditional media all seems to flock to the same topic, taking the same side of the issues mostly. News in the US drives the emotion of the crowd, but smart capital knows better.

    The stock market probably hit a tradable low point already less than 2 weeks ago. I will be a gradual buyer here and scale in. The fiscal talk may continue to linger at the headline through December, creating more volatility throughout. However, I expect an okay-to-good first quarter next year. Two to three years out from now, I expect the stock market to break the high point since rising from 2009 low, while at the same time, the bond markets may trade lower. Mortgage yields may bottom this year or next year. Once it starts to rise, it will no longer serve the housing market by lowering monthly cost.

    The world economy sucks right now, but US will be the last domino to fall. It will fall nevertheless, but not just yet. The stocks will always reach the high and low points without the headline news people knowing. If it’s in the headline news everywhere, you can be sure NOT to bet on it (but the opposite trade is not guaranteed until it reaches the max swing).

    Best luck trading.

    Frugal at 1stMillionAt33.com

    Posted in Stock Market | Comments Off

    California real estate markets are RED HOT!!

    Posted by Frugal on 21st September 2012

    I would think that you’re crazy if you tell me this statement six months ago. Frankly, RED HOT is not even enough to describe the current market. Here are some of my personal anectodes, based on my bidding in the market:
    1. Most listings go into pending on the first two days, or after the first weekend.
    2. ALL homes have multiple offers at or WAY above listing prices. It’s getting common to have some 20 to 40 offers if the listing doesn’t get pulled down in the first month.
    3. If you don’t work with listing agents, it’s end-of-story for you.
    4. Grand opening at new home sites are PACKED!!
    5. The bidding frenzy is extending some 60 miles away from the center of the metropolitan area.
    6. Even handyman or contractors for flooring/carpeting, etc. won’t answer or return your phone calls. I tried to call a handyman for flooring. Not only that he doesn’t return the calls, he has requested his carrier to post a message: “On the request of the subscriber, this phone number does NOT accept incoming calls.” Frankly, that is just NUTS! And this is not just an isolated experience on one handyman, but my experiences with several handymen are like this as well.
    7. MLS inventory was 40% down year-to-year several months ago. I wouldn’t believe this if I didn’t see this myself, but MLS listing inventory is going down to essentially absolute ZERO probably in the next one or two months within the 60 miles radius of my search. Just go to redfin.com, and punch the city names. On the upper-right corner, you can see the inventory plots. It’s a straight line heading down to zero, since last October/November.

    With Fed buying 40 billions of MBS mortgage securities every month thru QE3, which will tend to close the spread between treasury bonds and mortgage bonds, it is possible that mortgage rates may go even further down. FHA also may waive the 3-year waiting period after short sale/foreclosure. If that happens, in conjunction with even lower mortgage rate, the housing markets can easily go up by another 20%. FHA down payment is only 3.5%. That is basically nothing, and won’t even cover the transaction cost of buying and selling. Taxpapers are essentially subsidizing all the future defaults (again)!

    So where do we go from here? I’m a long-term bear on the housing market, and I have called the short-term bottom five months ago this year. I’m not changing my view (yet). But it is surprising that how much intervention can do to the housing markets. I expect the next short-term peak at about 2016, and the next bottom to come at about 2018 to 2020, but that is at least 6 years away from now. If you need a home, but you cannot wait for 6 years, it may still be better to buy now rather than later. I think the prices at the next bottom may be slightly higher than the bottom that was made in 2011/2012. But you would have saved on rents for sure. Given the current pricing, with the exceptions of being right at the center of metropolitan area, it is certainly cheaper buying than renting.

    Best luck on your housing hunting trip, because you will need A LOT of that.

    Posted in Real Estate | Comments Off

    QE3 rally

    Posted by Frugal on 11th September 2012

    Markets are already expecting a QE3 for tomorrow, and I believe that Bernanke will deliver, sending S&P 500 to new high. Despite that markets are overbought, with $VIX index at a very low level, I think we will get the QE3 nevertheless.

    All the people who are expecting Euro problem to continue are probably right, but being right doesn’t make you money. I’m holding my core positions at this point, and hesitate to chase this market further with VIX being so low. September/October is typically a season of higher volatility. Expect violent swings in both ways. Buying both calls & puts (or volatility) will be a good play.

    My portfolio has gone up by 11.7% in the last 30 days. Risky assets are back into play.

    Posted in Stock Market | Comments Off

    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