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

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  • California real estate markets are RED HOT!!

    Posted by Frugal on September 21st, 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, 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.

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    Amazon starting to require California tax on Sep 15

    Posted by Frugal on September 12th, 2012

    There won’t be any more tax advantage for Amazon starting in September. It would be interesting to see how Amazon will compete vs the big discounters like Walmart and Target. If you have any big items and know that they’re priced cheaper, you may want to get them before the tax deadline.

    Frankly I find that items at Walmart are usually cheaper, even after considering the tax factor. This year I bought just $50 from Amazon, and that is after many hours of searching just to try to put myself over the $25 for free shipping. Besides books & music which I don’t buy much these days, I often find that more than 50% of the 9% California sales tax goes into Amazon’s bottomline, while the buyers gain less than 50%.

    The stock of Amazon is at all time high, due to its new Kindle release. From that aspect, I believe Amazon has a very good chance in competing against Apple products. After all, people want to access content (music/video/books/games). A platform that allows you to access the greatest content at the cheapest cost will be the winner. Long battery life & easy access to any of your Cloud storage also counts. Cheaper price of $199 also goes a long way. A heated competition is always better for consumers.

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    QE3 rally

    Posted by Frugal on September 11th, 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.

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    Dividend cuts in energy royalty companies

    Posted by Frugal on June 15th, 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.

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    I bought my second real estate property

    Posted by Frugal on June 3rd, 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).

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    Get your investing thesis correct

    Posted by Frugal on June 1st, 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.

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    Posted in Market Pulses | Comments Off

    “My 1st Million At 33″ book is published at Kindle

    Posted by Frugal on May 24th, 2012

    Instead of writing on my blog, I have been working on my personal finance book. I have a lofty goal of making real changes in people’s personal finance affairs, hoping that more people can live under their means, and accumulate a great wealth for their retirement. The book is currently

    ON SALE for just $0.99

    Since the average number of books sold per title is less than 200, my expected revenue from my book will be 35% royalty of $0.99 x 150 copies = $52.50. My tax is about 47% (CA + Federal + AMT). Out of the remaining after-tax profit of $27.83, I have committed 25% to go to charity (see book for details). So I would net $20.87 at the end.

    I’m obviously not motivated by a potential $21 profit. But if I can change just a few people’s lives in how they manage their personal finance, it’s truly worth all of my time putting into the book. The amount of wealth within your reach or for any other readers is truly in hundreds of thousands, if not a million.

    YES, you can do it too!

    Thanks for any PF bloggers to put this news out. I have an OnlineResource page in the e-book that I can try to reciprocate your promotions.

    Here is the table of contents for Part I:

    Chapter 1: My 1st Million At 33 – Reader’s Guide

    • Profile of a Frugal Millionaire
    • How I Got My 1st Million At 33
    • Reader’s Guide to the Book

    Chapter 2: Understand How Wealth is Created – The secret to making big money

    • Becoming rich is extra-ordinary
    • Your time vs. money
    • The only secret to making big money
    • Take on good debts & avoid bad debts
    • My father’s business moto – How a business prospers
    • Utility and Scarcity
    • Attitude = Altitude

    Chapter 3: Book-smart vs. Street-smart – Being lucky is a choice

    • Difficulties are Opportunities
    • Book-smart vs. street-smart
    • A Tiger or a Dog – Finding a career path
    • The true value of a brand-named college
    • Consider free-lancing
    • The three ingredients in starting your own business
    • Being lucky is a choice
    • Pursue what you love; love what you pursue

    Chapter 4: Your Income vs. Expenses – Arbitrage the “geography”

    • Are you the boss or the slave?
    • Art & mechanics of budgeting – Running the saving marathon
    • Know where to focus your energy
    • Debit, credit, and cash management
    • Choose a wealth-conducing location – Arbitrage the “geography”

    Chapter 5: Why must you invest – Make your home as your best investment ever

    • Nothing is certain but death, taxes, and the I-word
    • Portfolio income is not a usable income
    • Make your home as your best investment ever
    • Avoid the scams and tricks from investment newsletters
    • The biggest investment mistake that people make in following Warren Buffett
    • Investment strategies by the size of portfolio
      • What to invest if you have only $10
      • What to invest if you have $100
      • How to invest if you have $1000 to $10K
      • How to invest if you have $10K to $100K
      • How to invest if you have $100K to one million dollar
    • How much investment risk can you take?
    • Finding a professional money manager: Things to know & ask

    Chapter 12: Summary – Get your action plan together

    • Summary – Yes, you can do it too!
    • Becoming rich can be a certainty, not a dream
    • Wealth is a (self-)responsibility – How I tithe
    • Reference guide & resources

    For those who are interested, here is the abridged table of content for Part II:
    Chapter 1: My 1st Million At 33 – Reader’s Guide (Same as in Part I)
    Chapter 6: Investment Theories – Active Investing vs Passive Allocation
    Chapter 7: Dividend Investing – Untold secrets of legal tax shelters
    Chapter 8: Treat Real Estate like a Business – Leverage & manage your cashflow
    Chapter 9: Mega-trend Investing – Bubbles are troubles or Doubles!
    Chapter 10: Stock Options – Risks vs. rewards in equity compensation
    Chapter 11: Estate & Retirement Planning – Don’t tip Uncle Sam & others
    Chapter 12: Summary – Get your action plan together (Same as in Part I)

    The full book will go on sale along with Part II later. Part II is targeted for investors with more liquid asset. I split the book into two parts, so that you can buy just the first Part for $0.99. You will not pay more if you buy Part I first ($1), and Part II ($2) later. The price for the full book will be $3. Once the promotional pricing ends, the prices will be more expensive, and I may offer a slight discount on the full book.

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    Housing market making a short-term bottom

    Posted by Frugal on April 3rd, 2012

    It looks like housing prices may find a short-term bottom this year, assuming a stable low interest rate environment. The primary reason that I’m saying this is because of an ultra-low inventory of homes on the market, about some 30% to 40% lower than last year or the year before. Furthermore, there are a couple of programs that may reduce the number of foreclosures or short sales to come to the market:

    1. Bank of America converting foreclosures to rentals to delinquent borrowers.

    2. Fannie Mae implementing bulk sale of REO to investors to convert to rental.

    The bottom line is that in majority of the US housing markets, it is becoming cheaper to own than to rent at the prevailing mortgage interest rate. This is bringing many big or mom-and-pop investors to invest in the housing market. However because of the low interest rate, I do NOT believe that this will be the final bottom before a sustainable rise. Eventually, the real bottom will be made near the peak of a bond market interest rate. With a rising stock market for the next several years, the mortgage interest rates will be rising as well, putting a cap over whatever advances that the housing prices can make.

    If you want to invest, make sure that it is both net P&L positive and cash flow positive on a 30-year fixed rate financing. The action of mortgaging will reduce the potential impact from the downward pressures of the falling bond market and therefore the rising of interest rate. With a rising rental market everywhere, it is a good time to invest in real estate as long as you can make the math works.

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    Re-hypothecation is a standard practice for margin accounts

    Posted by Frugal on January 1st, 2012

    Several friends of mine have concerns about their stock account safety, due to the concern of recent MF Global blow-up. So I read through the customer’s agreement and emailed the following five commonly used online brokerage firms: TD-Ameritrade, Scottrade, FirsTrade, Interactive Brokers, WellsTrade. ALL of them spelled out exactly and replied back to me with affirmative answers that they CAN re-hypothecate (or re-pledge) any of your assets in your margin brokerage accounts. For some of them, like Interactive Brokers (and a few others), it is not possible to move your stocks into your cash side of your margin account (unless your account is a cash-only account), even when you don’t use the margin buying power in your account. But of course, any gains or losses due to the re-hypothecation of your assets are not yours. ALL stock accounts are protected by SIPC coverage ($500K, including up to $250K cash, in the event of theft). But as you know, there are probably trillions of assets protected by the very small amount at SIPC. If there is a big theft like Madoff’s Ponzi scheme, SIPC is very hard-pressed to cover everything.

    The best thing to do is still to exercise your proper judgment, and go with a firm that doesn’t do any proprietary trading (usually against their own customers like many big Wallstreet firms). On paper, everything is “safe” until the money in the pot is just not enough for everyone.

    I also suggest to move your assets to cash accounts if possible. When you get a dividend-in-lieu instead of a regular dividend from your stocks, or you don’t get any mails or emails about voting events for your owned stocks, you can be very sure that your “own” stocks have been sold short by someone against your own interests.

    Also close any accounts at JP Morgan (or Chase bank), which has basically but “legally” confiscated MF Global customers’ funds for the failed trades by MF Global. Don’t ask me how it can be legal. Thanks to Federal Reserve for allowing this to happen.

    Regardless, I think if MF Global customers cannot recover their funds and at the same time Corzine doesn’t go to jail, there is something deeply wrong in this country.

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    (ex-)Goldman Sachs screwed up MF Global

    Posted by Frugal on November 1st, 2011

    It’s (ex-)Goldman Sachs again. No surprise. The former head of Goldman Sachs ran MF Global into bankruptcy, and was almost going to pocket 12 million dollar “severance” package. What a way to finish!

    Actually, I highly suspect that Corzine is that stupid to buy up European debts using a leverage of more than 40-to-1. I suggest investigators to look into the counter-party of whom selling the European debts to MF Global. Maybe Corzine was to lead MF Global to pay up what Goldman Sachs bought previously (while leaving Morgan Stanley to burn and drop).

    And the story doesn’t stop there. As with all futures market, there is no equivalent of FDIC nor SIPC insurance. MF Global even dared to use clients’ money of some 600 millions to mop up their mess. That is a serious crime. People should go to jail for this, but I doubt that would happen. And that was done under the helm of ex-Goldman.

    After 3 years since 2008 financial crisis, nothing is learned, and nobody went to jail. Occupy Wallstreet will only get bigger.

    The article at New York Times has the best coverage in my opinion. You do need to create a guest account to read it.

    Where is the Volcker’s Rule? Yeah, and Goldman Sachs became a bank in the shortest amount of time ever in 2008, and still borrowing from Fed for nothing, trading the money from the subsidy by taxpayers into oblivion. If Federal Reserve didn’t save Goldman Sachs, it would be dead by now.

    Frugal at

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