No idea, Captain. Though, I must say investing in the content provider sounds like the safer option.

With that said, anyone else having fun watching MCD?

Feeling... Bearish?
 

Greg. The last 5 years have been nice... but I have to admit, since about the beginning of the year I have been feeling a bit nervous, kind of bearish so to speak. I am having trouble comprehending the market... last time I had this feeling was late 1999. I'll have to admit, this does not feel bad in quite the same way, just seems a bit high.

Is this just a natural reaction to the market hitting new highs?

What say you?

Not being mean here -- please understand the response.


Go to any company that has a chart longer than say 20 years.... put the chart in ALL mode. If the chart goes back to about 1950 --- how many "NEW HIGHS" were put in as we climbed from a DOW that was about 300 back then.

The DOW was 130.57 on January 1st 1941....

The reason that I have urged people to buy DIVIDEND paying stocks is because we can not rely on day to day price increases to fund our retirement savings or our retirement income. That takes cash flow. If the stocks you own are paying dividends and they are being re-invested - then if the market takes a dip - you will be buying MORE shares - which is a good thing! The whole point of this long winded thread is to get people to STOP trying to second guess the "market" and just buy the best of the best - that pay dividends - and HOLD ON TO THEM for the long term. Be a Warren Buffett.... He buys - he never sells... he's one of the richest men on the planet.

If you sell every time you "think" you know what's going to happen -- you're never going to get anywhere with your investments. The market will - mark my words WILL - go down.... it will also go back up - or maybe just tread water for a long period of time (as in YEARS - not days). You will never know in advance when any of that is going to happen.

I think oil being down and it says down will have a ripple affect in the overall market. I think we will see it more around here than other parts of the country. I personally know 2 guys that were making a ****load of money in West Texas that live here and they are back home looking for work now. They were both spending and buying up toys, new big houses, reasturants every day they were home ect.

I keep telling people around here so happy about cheap gas that they need to be carefull what they wish for. They might get it and nothing comes free.

The smart bet is to have a little in all of the categories you bring up. As in most things - there is rarely a "ZERO SUM" game. Investing like this is called DIVERSIFYING.... because none of us have a crystal ball. While it's easy 20 years from now to look back and pick the 'winner' and wish you'd have invested every dime in "it"... that is just dreaming. Better to put $500 in each category (or whatever a guys allotment is) and let 'em grow. You can always adjust the investment when and if "the picture" becomes clearer.

Greg - just occasionally have doubts - I know, hold the course. I don't do much of anything in this arena on a whim. I'll obsess about it for a while before I do anything. In the 90% of my 401k that I can port to a self directed brokerage account I am about 10% MO(since 2012), 6% CAG (since 2010), 8% JNJ (since 2011), 6% KMB (since 2011), 10% MRK (since 2011), 8% NUE (since 2011), 12% VZ (since 2012), and 8% WM (since 2012). I moved about 10% to BP and 10% to GE this past December... my only real recent moves. So, as you see, not a lot of jumping in/out or churning and all of them are big names that pay decent dividends. Of course the account is set up to reinvest on all of them. Of the 10% that I cannot do the brokerage on, about 1/2 is in company stock and the rest is in "growth" funds. I have another little IRA account we set up that has mostly KMB and PG that I have held since 2011. And then there is my wife's 401 which is stuck in some generic Schwab funds, but there are not very many choices for us in that one.

You have good names --- and kudos to you for understanding investing! Now -- quit fretting about all the "news" and talking heads... they'll only get you churned up in the interest of "news".

Right now I'm bouncing between feeling like I should be buying more right now and just ignoring things...and letting them roll.

Either way, I'm still sleeping very VERY well.

I've kinda wondered at times if we're getting to 1999-2000 levels. Take a look at these two charts. If you look at individual tech names like Cisco, Intel, etc the spread is much wider between then and now. I think the biggest risk is some geo-political or terrorist event, aside from that things look pretty good I think, but what do I know, my crystal ball broke last week

http://www.multpl.com/

http://www.multpl.com/shiller-pe/

Please remember that the build up to 1999 was a whole bunch of investment into companies that had nothing behind them! They were "eyeball counts" and "page views" and a whole bunch of crap metrics that meant nothing! That was the whole "dot bomb" era.

Now... we repeated this in a round about way when anyone and everyone could buy a house with nothing down - and zero payments and zero job or income to support it. That was a house of cards that had to implode on itself.

Today you need real income and a down payment to buy a house -- and the whole 1 year no interested etc is all but gone.

Ditto the companies you SHOULD be investing in. They should have real brands with real sales and real profits and paying dividends supported by all of that. If you choose to play the "maybe some day they might grow into a real company" that's a whole other scenario. When I "invest" in companies that maybe one day might be something ---- I might buy a couple hundred shares of that -- versus 1000's of shares of the real stuff. So if you buy 100 shares of Ford - or Coke - or McDonalds -- maybe you'd buy 10 shares of GoPro or Alibaba.... Just saying.

The only thing I'd be really wary of right now is INTEREST RATE SENSITIVE STOCKS.... Stuff that might find themselves in an interest rate squeeze with a bunch of low yielding rate investments in a rising rate environment. Banks might actually do well in this scenario because they're spreads might increase but they won't if the consumer says NO to the higher mortgage rates. Remember that in order to make money with higher rates -- you have to be able to lend that money out! So we'll see how the public reacts to that when and if it happens.

Greg, what is your take on interest rates? Specifically, mortgage rates?

I really don't follow mortgage rates - and couldn't tell you where they stand right now. But what I'm afraid of is that mortgage rates rise after YEARS of them being historically low - and that the consumer can't "afford" or doesn't want to afford the higher rates. Having said that - it might spur people on to get moving and buy a house before they go higher too... so it's anyone's guess. But with the tighter (better) lending standards - I wonder if the two things combined won't be a punch in the gut. Of course this all depends on how FAST they rise.

You're in the front row seat to gauge the consumers reaction to rates - and to how the newer lending standards have affected people's buying. What's your take???

I agree that most are conditioned with super low rates. Folks think a 5% interest rate is high. ha I don't think it will take long for most to get past rate as with any installment situation, it's driven by monthly budget.

Here, affordability is still in the zone where it belongs. Buyer's can still afford what they want in most cases. I think we have room for higher rates, just not a drastic change. We are still a slightly seller's market which is one of the factors that backs me up. Depending on market dynamics, I do think a rate jump could result in a healthy adjustment in median price. Much like the stock market, it's a completely different picture than 10 years ago. Qualifying has been hard during the recovery and consumers have the dignity of choice due to the basic fundamentals that didn't exist last time around. Meaning, they can put timing on their side.

May just dip my toe back in on a few select stocks today...by the looks of things.

It will be interesting to note if buying brings things back up this afternoon or if the selloff continues.

I checked my portfolio earlier...

http://www.hizb.org.uk/wp-content/up...-The-Chart.jpg

the worse thing is I only have like 200 bucks to buy anything...

Several of my long term plays took a big dip today. I wish I had money to buy more.

yea me too, hadnt seen everything in red in such a long time, not to mention almost everything I have was close to a dollar or more in the red...

A rate hike appears to be coming.... and the market will have to adjust to that. I would expect more "dips" as people ready themselves for a rising interest rate environment.

While the rate hike has been "expected" for a very long time... the sooner we get it done - the better the market will like it. In the meantime people will be taking gains and locking them in. That's a pretty short sighted view of the market - but it is what takes place. There's no denying that all of us are just along for the ride.

I did some buying today...sparingly...

I'm thinking I'll get chance to buy more stuff on sale too.

Go look at historical rates from the 80's!
http://www.freddiemac.com/pmms/pmms30.htm

I remember my folks getting into a house at just under 10%.

What is "dangerous" about people shopping at these low rates is they listen too much to the realtors and some buy every bit of house they can "afford". Eight years ago when we moved here my bank told me they would loan me up to a certain amount. When they did my pre-approval letter for the realtor I asked them to drop that number more than 1/2. At the end of the day you still have to heat / cool / and pay taxes on that property! We knew what we wanted and needed, and the number we gave the realtor fit that. And, wouldn't you know, every house she showed us was just at or over that number!

Michael --- I think you are missing the point we were discussing. It's not that people will adjust to the rate at any given time. But what we were talking about is the fact that rates have been so historically low for such a long period of time.... that we're wondering what the consumer does when/if they begin going up. We've been in a period of years where 3 and 4% rates are the norm.... and while 5% is still quite good/low... will people be put off by what that does to their "affordability" and what they've become used to.

It takes the "move up" buyer to help a market along.... So now let's say the move up guy has a 3.5% mortgage.... His house is too small - he now has two kids -- his value is up... so he begins to shop... All the other houses in his area are also up in value... but now his new mortgage is going to be 5.25% and he needs to borrow 100K more to do the move up. Is this family mentally ready for such a large increase in their mortgage costs. So do they repulse and just stay in their current house... which is NOT helpful to the market for loans or for real estate sales and all the other things that come with that?!?! Sure 5.25% is still "low" --- but it's a large jump from where they were/are. That's the point.


BTW -- I had a mortgage at 15% back in 1980..... My business was a .75% above Prime borrower... in other words - a stellar account. I can tell you those were NOT good times. Inflation was off the charts. Sales sucked. The economy sucked.

Interesting - if only from a historical perspective.... We absolutely know the FED will hike rates... that's a given. What happens when they do... is the unknown. Seeing what's happened historically helps us "understand" the markets reactions.


http://www.marketwatch.com/story/her...ike-2015-03-06

That's like blaming the bar for an alcoholic. I've been in the business for nearly 15 years. Many American's are wired to buy as much of everything as they can afford. I can tell you that today, buyer's are more economical with their decisions as many have been burned and learned a lesson or in position by being conservative in the first place.

I believe in representing my clients best interest. We go over the loan worksheet, I discuss the real costs of ownership, new vs old systems, not utilizing retirement funds, locations, crime statistics, and on an on. I know if I do my best at representing my clients, there will be plenty of money. Money is far from my primary focus. As with any business, there is a wide range of professionalism, experience, and integrity.

Good post Dad!!

Thank you sir.. My kid will be way faster than Gordon's. His car will probably run, too.

No - I get it, just not as eloquent as some in expressing myself. Just remarking on where rates were and how different it is now.

It will be a large barrier - that is for sure, the monthly budget is the driver.

Faster at installing an accusump maybe. But not faster at driving. :action-smiley-027:

:cheers:

OK, the broad general statement was unfair. Yes, there are many who are ethical. But, I have met plenty that are focused on their own bottom line and are more than willing to facilitate.

I am afraid it is like many commission sales based occupations. There are good, bad, and some that are just plain mercenary.

If someone can't take some personal responsibility for what is most likely the largest purchase of their life, maybe they shouldn't be buying the house in the first place if they need to listen to the realtor so much. The math is simple.

If personal responsibility was in vogue the housing crisis would not have happened. Consumers would not have gotten into > 100% home loans, taken HELOCs on the houses, or pulled equity to finance their toys. Loan companies were allowing loans that should not have occurred.

Remember half the people out there, by definition, are below average. And wisdom usually comes at the expense of time and age.

And, as far as math and finance is concerned, a lot of people I know starting out and who are young are very optimistic about their finances and their future income. They assume that the job will always be there, that both spouses will continue work, and that their incomes will go up. For example, I met a young lady eight years ago when I started this job who sat next to me in my orientation class. She and her husband were newlywed and new college graduates with Engineering degrees. They bought a five bedroom house in the suburbs for the two of them to live in. It was at the limit of what they could afford and she was telling me what a great investment it was. Wow!

Whenever a situation exists where one person can take advantage of others with impunity, there will exist such people who will do so.

On one hand I agree with you. Caveat Emptor, and etcetera. I am the kind of person that has a Libertarian mindset towards government, less is better. But, on the other hand how do we make sure things are fair and people do not get taken advantage of. This is not a question I know the answer to, I am not that smart.

The key issue is people/buyers do not ask enough questions and take responsibility to seek to understand. Too many people buy with emotion and then realize the math does not work until AFTER they sign on the dotted line. 60%'er in my opinion. We have all done it...cars, homes, beverages, watches, stocks, <insert material item name here>

The scariest statistic resonating with me is the average American watches 8-10hrs of TV per week but spends less than 2hrs per month on finances. (The Millionaire Next Door or Automatic Millionaire) I spend at least 2hrs per week in this Investing 102 thread and since joining the Weld Financial Forums, more time researching on Google Finance and Charles Schwa than I care to admit. Ha! And we wonder why we have crisis or market fluctuations. :knock:

Weld Financial Partners Inc. haha

Im thinking to let my dividends accumulate until later in the year to buy more and reinforce a few of my positions

To be honest I am scared to buy more oil even though everyone keeps saying its at the bottom or near it

I have been thinking hard about buying media content providers like I posted not too long ago instead

You could also say that your investor's club has a racing problem...

Good one Mike! :catfight:

I too am skeptical of oil BUT it is so hard to sift through all the noise. Just sitting tight and not listening to the conjecture. Long term, hold on for the ride and look for buying opportunities.

Something Amy and I have been talking about recently is "if you had $400-500k to invest, how would you do it?"

Would you:
-Buy a franchise
-Invest in commercial real estate
-invest in a business
-pile it into more dividend positions
-buy into an MLP or REIT

...the list could be way longer than the above. Just a few ideas.

Curious what you guys think. We have always pushed ourselves to think beyond our current scenario and better understand differing ways to educate ourselves on how to optimize our "employees".

The hard part of answering the "what would you do with X scenario" is that it all depends.

For me - being retired - I don't want anything to do with ANYTHING that looks like I'd have to work at "it" or spend time managing "it". So more dividend paying stocks or apartment/commercial real estate LLC's would be my choice.

If a guy is young - still has younger kids at home etc - then maybe something that takes a more active involvement might be the right answer.

If a person is nearing retirement age -- I wouldn't want to see them investing in a business or franchise that is too much "risk" - and if they lost that - wouldn't be able to recoup perhaps.

So given that scenerio, "if" someone was to buy a small apartment complex for cash, besides the fact you have to constantly babysit and maintain, it keeps up with inflation. What is the national average of % of property management fees?

First of all -- it doesn't pay to buy REAL ESTATE - especially commercial real estate with "cash" -- it pays to put a healthy down payment (the LLC's I invest in use 40% down). The key to making money on rental real estate is to be able to leverage up. Let the tenant(s) make your payments --- and be able to utilize the depreciation to shelter the income. I say SHELTER because when the building is sold -- you're going to recapture all that depreciation. Now we're getting way over Investing 102.... but in a nutshell --- you'll want to use the cash for the down -- leverage for growth -- and the depreciation to minimize taxes during ownership.


Pro management fees vary -- but normal is 5% or so.


There's LOTS to learn about buying rental real estate. Which is why I invest with professionals that only do this sort of work. We typically like to buy a property that is "under market" in rent... for some reason or another - maybe bad previous management -- maybe because the building is aging - maybe they aren't competitive with amenities... But what we want is the potential to come in and re-position the property to be able to charge the market rates going forward. That can mean MAJOR remodeling of the units -- adding amenities - or redoing parking and pools and landscaping and paint and roof etc. That takes CASH... so you'd better have that all planned for in advance.


The last property I invested in - we completely remodeled every unit as they became vacant... the rents on those units are now UP 50% from when we bought and the property brings in $25,000 more per month than it did when we bought it. Doing all the remodeling reduced the cash flow from the property to ZERO for about 2 years... (that's called INVESTING).

Commercial properties are priced based on their revenues etc. They're not priced like your house. In order for an investor to make "X" return based on the current revenue - an investor can only pay "X" for the property. You have to factor the returns based on the prevailing financing... upgrades... future potential of the rents in the surrounding area etc.

You also NEED to know who your competition is! What is the market for X square feet with similar amenities... is there any new properties planned for your area? Is the area a bunch of generation Y's -- single -- no kids and your building is mostly set up for families?? Or vice versa?

There's a lot to it - like most things - if you want to put the chance of success on your side.

This is the one I own a quarter of in Seattle... it was a dump when we bought it -- didn't have washer and dryers... and was ugly colored and outdated.


http://sierraongreenwood.com

Greg has a lot more experience in rental property than I do and I'm not trying to steal your thunder Greg but I will share my experiences to hopefully contribute to the discussion here. I bought my first one here in Phoenix, a 20 unit place, in 2002. I sold it at about it's peak for a 133% profit, plus the monthly income, tax benefit etc. BUT, I was over there every weekend just about (just like when I was a kid at the building my dad owned) after working 10 hours days all week long at my job. I exchanged that one into one twice it's size in San Antonio (a rapidly growing market at the time) and a lower class but higher CAP rate. Biggest investing mistake I ever made. Why? The reason I bought it, so I COULDN'T go over there all the time, was also the biggest reason I SHOULDN'T have bought it. Management wasn't near what it was represented to me it would be. By the time I found the right guy 3-4 years later, the property had sucked up so much money that it couldn't recover. I sold it last year at a considerable loss, and valuable lesson learned which has made me a much better investor going forward.

Now my brother and I have a Walgreen's store that we inherited from our father who passed away about a year ago. He bought it to get him to the end of his life. It's a NNN lease with good cash flow and he didn't have to do anything. The loan is at 6.2% and has tremendous pre-payment penalties, called "defeasance", which basically in our case amounts to 20% of the current loan balance additional if we want to sell it or even re-finance it early. The reason is these loans are sold as CMBS or commercial mortgage backed securities so if you want to get out early the investor wants all the return he originally signed up for, so you have to pay it. It's not a bad deal though, we'll just keep it until it matures in 2019 and collect the income for doing nothing in the meantime. We could just probably do better with it somewhere else, MAYBE!

I think rental property is a great investment but big mistakes or mishaps can happen too. The loans are much different than home mortgages so you have to know what you're signing and getting into and commercial property loans are even more complicated and often harder to get out of early.

BTW, going through some of my fathers things recently turned up a savings account passbook from the early 80's that paid 15% interest, for a REGULAR savings account, so it's all kind of relative in most cases. I'm gonna go out on a limb here and predict we aren't going to see that any time again in the near future.

So some great info I hadn't known before, thanx Greg and Erik. Much to chew on.

Commercial real estate scares me - maybe mostly because I do not know enough about it. But, what I observe here locally: New properties that are super hot and fully leased. New properties that look like they are in the 50% leased category, I can't imagine how the owners are making money. And older properties that are in decline and slowly loosing tenants. It seems very fickle. It also seems like the local market is somewhat saturated. I see too many properties with vacancies, that can't be good. And this is an area where the economy seems to be doing well.

Apartments would seem to be a sure thing, especially with house loan requirements being stricter. I remember occupancy rates in Austin in the mid 90's being north of 95% - super tight. Every time we renewed our lease the rate went up, not good for college students. But the local government had put a freeze on building permits for apartments in the 80's because too many people with oil money were building real estate to shelter their profits, even if it meant they lost some money short term. The market was overbuilt, but it caught up and the city was still hesitant to release new permits. But, when they did it was an explosion of growth. It reminds me that these markets are also influenced greatly by the municipalities and the taxing entities. They can change rules on you in a heartbeat and kill what you thought was a sweetheart deal that you are now locked into. So - yes, scary to me.