Investing 102

[GregWeld]

So if you pay attention to the market -- and you've been watching this last couple days of 200 point selloffs... you might be saying OMG!! The sky is falling the sky is falling....

But - always a big butt - the DOW is still UP for the first six months of the year -- by about 13%. A GREAT YEAR would be if you managed to be up 10% for the entire YEAR... We're only halfway into the year.

Someone called me last night and was just about in a panic... as he said breathlessly - You (meaning me) must be just losing your ass!!

Uh - yeah - sure.... I said -- I was down around 100K today in the Schwab account (I only use one account to monitor how I'm doing) and I said - I'll probably be down another 100K plus tomorrow... BUT -- That account produces 58K PER MONTH in dividends. So big whoop. By the way - the caller had also completely forgotten how much capital gains have taken the account up... so if you're UP 15% and you go down 5%... SO WHAT! You're still up!

I'm just trying to put this day to day swing into some kind of perspective. That's the important thing in investing - you have to keep your perspective.

If a guy had a large apartment building and it's well financed and producing a positive cash flow... and suddenly the real estate market goes to hell.... SO WHAT -- he's collecting cash flow every month... what difference does it make if the building is worth slightly less -- or even slightly more from time to time. It's value is only important at the point he decides to sell. If he's not selling - it's not important.

The FED deciding to taper their bond buying -- is telling me that perhaps the economy IS finally getting better.... and when the economy does better - businesses do better... and that's a positive for me. Now -- down the road -- if interest rates climb WAY HIGHER than where they are right now -- that can have a drag on peoples balance sheets. But we're nowhere near that level.

That's my story and I'm stickin' to it!

[GregWeld]

BTW -- I love to just check various things -- regardless of whether or not I'm invested in them. Oil prices are important - Gold prices are important - the price of BitCoin - not so much.


If you were a gold bug.... you've watched the price per ounce go from $1700 to under $1300. That my friends is a HUGE loss...

I never was interested in it -- and always questioned why anyone would be. To me - it was always just gambling - hoping that someone would pay you more than what you paid. No thanks. It generates ZERO income. Check! No thanks.

Ditto that whole Bitcoin "investment" -- the only game in town is hoping like hell that someone is willing to pay more. No thanks.

I got a check from Con Ed (ED) last week.... $4,950.00 THANK YOU...

[sik68]

Thanks for the insight as always, Greg. As your typical Investing 102 student, I often fall back into the trap of "what's my investment worth." It's good to be right now as a reminder that whether the market is up or down, the 102 strategy wins.


Also, I want to practice rental real estate and am looking for a good book that includes theory and worksheets that demonstrate how to get cash flow positive (and/or show a taxable loss). Any leads?

[Flash68]

Originally Posted by sik68

Also, I want to practice rental real estate and am looking for a good book that includes theory and worksheets that demonstrate how to get cash flow positive (and/or show a taxable loss). Any leads?

I have a bunch of these books Steven and you are welcome to borrow any or several of them next time you come by. Their principles never change either so they do not really become dated.

[ErikLS2]

Originally Posted by GregWeld

If a guy had a large apartment building and it's well financed and producing a positive cash flow... and suddenly the real estate market goes to hell.... SO WHAT -- he's collecting cash flow every month... what difference does it make if the building is worth slightly less -- or even slightly more from time to time. It's value is only important at the point he decides to sell. If he's not selling - it's not important.

Great point Greg, except if you're like me and all that applies except you need a new loan by March and they are basically NOT lending, unless you can prove you don't need the money!! 2-3 times the borrowed amount in net worth is what I'm hearing.

On another note, you still high on NLY? I haven't checked but I heard on the radio yesterday that their yield has gone down around 12 or so?

[GregWeld]

Originally Posted by ErikLS2

Great point Greg, except if you're like me and all that applies except you need a new loan by March and they are basically NOT lending, unless you can prove you don't need the money!! 2-3 times the borrowed amount in net worth is what I'm hearing.

On another note, you still high on NLY? I haven't checked but I heard on the radio yesterday that their yield has gone down around 12 or so?

Banks have come BACK TO -- everything is about the numbers... THAT was the way banks were all during my professional life. If your numbers don't make sense from a risk standpoint -- then they don't loan. That was the way it always was. Apartments? You need 40% EQUITY...


I like Annaly (NLY) only from a cash flow perspective... it is not a place for capital growth. And is very interest rate sensitive. THEY borrow to invest. If their costs of borrowing go up -- then the spread starts to go away. I own about 40,000 shares -- so not huge position (relative to my investments) but I like the dividend and it's been a good place to park cash. I have warned many many times -- that this is not a buy and forget stock... and I have warned many many times -- that we are in or approaching rapidly - a rising interest rate market. These kinds of stocks WILL suffer capital losses UNTIL the dividend rate is so compelling that it finds a base.

Year to date -- it's DOWN almost 11%.... so that's a result of rising interest rates. But as the share price goes down -- the dividend yield rises. At any point for any stock - that creates a floor for the price.

BTW -- The "EX date" for NLY is June 27th... and it pays .40 per quarter or 1.60 a year. I have about a 60K capital loss in the shares I own -- but -- Big Butt -- I pick up 16K PER QUARTER in dividend -- and the loss varies day to day... and I'm not selling so it's just paper at this point. I took a long term capital gain of around 40K earlier this year on the name... so between that and the dividend -- even with the current sucky position - I'm a winner (as of now). If it holds here -- I'm "even" by the end of the year on the current position. That's kind of the way I view this one.

[GregWeld]

As usual -- I start every day with coffee -- and CNBC....


The talking head is telling everyone that GOLD is at a 4 year low... and on pace for it's worst week and blah blah blah.


Here's my point... and I've said this about half a zillion times in past posts.

When everyone is talking about something - whatever that is - RUN AWAY.... For the last 3 or 4 years all I heard about was GOLD going up - and GOLD is going to 2000 and GOLD is this and GOLD is that.... WHICH IS WHY THE ONLY GOLD I OWN IS IN WATCHES TO WEAR... cause that's all it's good for in a retail investors mind. It's jewelry... buy a bauble for your wife.

NOW --- in a DOWN MARKET all you're going to hear from the talking heads is how bad it is -- and how low it's going to go.

They did the same thing during DOT BOMB days -- and the same thing during the housing boom and bust....

Don't get caught up in those traps. When the guy at work - that you know has nothing and knows nothing - is telling you about the latest "can't loose" investment --- RUN AWAY WITH YOUR HAIR ON FIRE.... cause you might make some on the way up -- but you'll never know when it's about to break - and they break faster on the way down than they do on the way up. When everyone is talking about "it" -- IT is just about done.

[GregWeld]

Okay -- So I'm a post whore this morning...


Here's your homework for Investing 102 for the day. We just had a couple of "not so nice" days... really == the first kind of not so nice days since this thread began.... so here's what I want you to do.

Go to Google Finance.

Pull up a chart on

KMB -- Kimberly Clark -- Don't wipe your butt.... just pull up the chart...

Now -- click on ALL.....

Now -- Look at the gain percentage....

Now -- Pull up a chart on JNJ - Johnson and Johnson and repeat the steps for ALL on the chart.


What I want you to SEE ---- Not the gains.... LOOK AT THE DIPS.... There are MANY!! Some of them quite dramatic. Scary even. OMG....

Now -- notice that in every case -- they are just that -- mere dips. Get over it. If you'd held JNJ for 20 years you're UP 16,000% -- and you're ONLY up 3700% on KMB....

I own neither of these -- I'm just using them here to show you a "proxy" for "the market".

[XLexusTech]

Originally Posted by GregWeld

Okay -- So I'm a post whore this morning...


Here's your homework for Investing 102 for the day. We just had a couple of "not so nice" days... really == the first kind of not so nice days since this thread began.... so here's what I want you to do.

Go to Google Finance.

Pull up a chart on

KMB -- Kimberly Clark -- Don't wipe your butt.... just pull up the chart...

Now -- click on ALL.....

Now -- Look at the gain percentage....

Now -- Pull up a chart on JNJ - Johnson and Johnson and repeat the steps for ALL on the chart.


What I want you to SEE ---- Not the gains.... LOOK AT THE DIPS.... There are MANY!! Some of them quite dramatic. Scary even. OMG....

Now -- notice that in every case -- they are just that -- mere dips. Get over it. If you'd held JNJ for 20 years you're UP 16,000% -- and you're ONLY up 3700% on KMB....

I own neither of these -- I'm just using them here to show you a "proxy" for "the market".

my strategy is to do just that... and snipe them when the overall market is down... JNJ i was in @ ~60 for example

[GregWeld]

I was reading an article on MLPs - Master Limited Partnerships... Kinder Morgan (KMP) is one of these... which we've written about in the past. What was funny about the article was what the author tossed in near the end.


It has been my experience that it is not what you buy that matters - it is what you hold on to. When one has confidence that they know the key metrics, one tends to hold on to investments with superior performance metrics. When one buys based on borrowed opinions, both the confidence to pull the trigger on the right investments and the comfort to hold those right investments is lacking.



You've heard me say this a few zillion times now. INVESTING is about confidence. YOU ALL must invest in companies (stocks) that YOU have confidence owning - thru good times and BAD. In the long run that's how you make money. Not by trying to buy low and sell high week to week or this six months vs next year.