Investing 102

[WILWAXU]

Originally Posted by GregWeld

And just another in a series of "OOPS" we lost your money -- oh well......




One of Japan’s biggest cryptocurrency exchanges said that about $400 million in NEM tokens were lost after the coins were sent “illicitly” outside the venue, spooking investors in a country that’s still wary of digital-token exchanges four years after the collapse of Mt. Gox.

That's wild.. they still haven't fully embraced credit cards in parts of Japan.

[GregWeld]

I've said it in here a million times...... just as "things to watch out for" in investing. There are always correlations of money chasing a return. Bonds have sucked as an investment vehicle for years now (in my mind - forever) with low yields (interest), and no growth (a very basic statement). A decent common stock dividend has paid double or more. But the market has always reacted to "bond yields". Money chases money....

So -- what am I saying?? I'm saying that as yields on bonds rise -- money will seek out the return rate that is equal to (factor taxes in here) safe returns in stocks.

Now -- make no mistake -- the long term historical return on stocks far exceeds bond returns... but there is a huge amount of investor capital that loves bonds "safe" predictable yield.

What's that look like?? As bond yields seek a normal level --- rising --- you'll see sellers in the market raising cash - taking their gains (huge gains) -- and running to bonds. For me -- these inevitable selloffs are buying opportunities. Just don't go all in every purchase. Pick your names - make a list - and buy some as opportunity allows.

The lowest paying dividend yields will get hit as money moves out of them and into higher yielding names or in to tax free bond yields.

REMEMBER TO ALWAYS CALCULATE YOUR YIELD AT YOUR COST BASIS!! Don't look at what the yield is at today's closing price!! Your yield might be double, or better, than what the current price/yield is. So don't get tricked making this common mistake!

The math for this ----- your cost per share divided in to the annual (not quarterly) dividend in dollars and cents. Move the decimal point in the answer.


div is $1 (.25 every quarter X's 4)

your cost is $12 per share

1 divided by 12 = .08333333

Move the decimal point 2 places ---- it's paying you 8.33%

The fact that it's now selling for $24 a share and showing a 4.16% dividend is correct if you bought it today - but you were so smart and bought it 3 years ago !! LOL

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We've discussed LLC's and "commercial real estate" investments - such as multi family (apartments) etc. I've invested in this type of opportunity for almost 30 years now. I was reminded of something that just happened to one of my investments when I wrote the part above about calculating your yield on your cost basis.


5+ years ago I invested in an apartment complex in Seattle. Seattle has been one of the hottest real estate markets for quite awhile now. The yield on this investment is 7%. That's great income - and income from this type of investment is offset by the depreciation come tax time.... so these work great for guys like me. Eventually you have to "recapture" all of that when you sell etc - but for the typical hold period of 10 to 15 years -- you're collecting that payment "tax deferred".

Now -------- every 6 months we get a state of the investment (LOL) letter along with our check. They've been very "rosy" and have shown a massive increase in the value of the property.

When it crossed the line exceeding 100% of original purchase price (couple years ago) --- I wrote to management that it should be discussed whether it was time to capture that gain... because the CURRENT ROI (return on investment) is half what it could be if we sold and reinvested in something else. This is not exactly true if you calculate it all out - taxes have to be paid etc -- but basically -- think of it this way.... I invested over 1MM in this deal -- I get 70+K annually -- but now my 1MM is worth 2+MM - and even if I paid 40% taxes I'd get 1.6MM net.... if I invested 1.6MM in something that paid 6% ---- I'd get more cash (ROI). Plus -- nobody ever went broke taking a profit.

Now ---- that does not mean that you should be doing this with STOCKS. Stocks are LIQUID --- real estate is not! Your cost basis stays where it is -- and the growth in capital is your paper gain and the ROI should INCREASE over time as they raise the dividend rate -------- these real estate investments DO NOT do that -- they're like bonds -- as long as you hold them they're going to pay the agreed to rate. They're tax plays along with capital growth over time.

I'm mentioning all of this as an INVESTING 102 "lesson" ------- pay attention to your ROI --- know how to calculate it --- all investments are NOT equal!! Each type has its own parameters. Make sure you understand those and don't get caught selling a sure fired winner because you miscalculated your real return etc. Or don't get caught holding a low rate of return when you could have sold and moved it to a higher rate etc.

[SSLance]

Good advice Greg. Curious if you've sold that apartment complex yet or not? The only problem I see with doing what you talk about in Real Estate is you generally have to pay more for what you are replacing it with. Unless of course you are in the fixing up segment of the market and if so, then by all means...

Unrelated but I thought this was a good read, some of you may as well.

http://creativeplanning.com/news-article/the-waiting/

[GregWeld]

Originally Posted by SSLance

Good advice Greg. Curious if you've sold that apartment complex yet or not? The only problem I see with doing what you talk about in Real Estate is you generally have to pay more for what you are replacing it with. Unless of course you are in the fixing up segment of the market and if so, then by all means...

Unrelated but I thought this was a good read, some of you may as well.

http://creativeplanning.com/news-article/the-waiting/

Good question Lance.

The info was just fed to me with the final payment of the Partner Distribution made a week ago.

Here's some interesting details to help people understand these.

Typical holding period on these kinds of properties is 10 to 15 YEARS.

Only the Managing Partner decides to sell or hold etc.... The investors are along for the ride. Therefore these are completely illiquid !!

The market is so hot in Seattle -- that this property will be placed for sale on a bid basis - with no stated sales price. Bids have to be in by a specified date and due diligence and close by dates are specified.

Offers are then reviewed and accepted.

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This property was purchased for $7.4MM -- and will sell for 16.5 to 17MM

So along with the "decent" Partner Distribution of 7% annually -- we'll all see a return in excess of 100%

Not a bad investment for 5.4 years


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A direct answer to the question of reinvestment:

Sometimes these are done on a 1031 exchange.....

Sometimes they're sold outright (the case here)

I've invested with this particular group for almost 30 years. I turn 65 in August --- and while the hold period was fine when I was 40 or 50 years old --- 10 to 15 years is too long for me to hold now. So as these cash out -- I'll simply put the money in to investments where I (or my heirs) have control, and have liquidity.


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5.4 years ago -- a 7% distribution was stellar. Todays buyer is going to get sub 5% (this depends on the final price and financing and rental rates).

In a rising rate market - that we're in now - I would not accept a sub 5% distribution. My guess is FED bonds (10 year bond) will exceed that soon enough, and they'll be tax free.... Many stocks pay in excess of that (even factoring in taxes) and they're liquid.

Remember that we're talking about a particular market (Seattle). Cap Rates vary greatly depending on the market....

[GregWeld]

I like this statement from Janet Yellen...... 'tiz fact.



The current U.S. economic expansion is now approaching nine years and is the third longest in duration since 1945, according to the National Bureau of Economic Research. Yellen said the economy can continue to grow. “Yes, it can keep going,” she said. “Recoveries don’t die of old age.”

[glassman]

that is a great quote.

Greg, on the reit. This may not be a proper question but here goes. Did you know the number of units (at the apartment/condo/highrise etc etc) there were and the average sq ft of each unit? in other words, i'm curious to see what these boil down to on a cost per sq ft basis. I know in the custom and track home building business's this matters, was wondering if the same applies to a reit.

thanx

[GregWeld]

Originally Posted by glassman

that is a great quote.

Greg, on the reit. This may not be a proper question but here goes. Did you know the number of units (at the apartment/condo/highrise etc etc) there were and the average sq ft of each unit? in other words, i'm curious to see what these boil down to on a cost per sq ft basis. I know in the custom and track home building business's this matters, was wondering if the same applies to a reit.

thanx

Okay -- it's semantics -- but these are NOT REITS (Real Estate Investment Trusts) -- these are private LLC's....

Yes --- Price per square foot matters.... and the condition of the property relative to its neighbors/neighborhood.... and it matters what it's competition is getting in rental rates ------ if you plan to buy a beat up property and improve it.... can you then raise the current rate to market.

The guys I've invested with have several key investment strategies that I personally am drawn to:

HUGE down payments --- 40% ish or more

Large cash reserves

Cash to improve the property immediately (meaning part of the cash raise from investors includes the updates)

Improve the property to raise the rental rate.... even if it means no return to investors for a year or two. What happens here is a lack of rental income while you're remodeling several units at a time.

Buy properties that have been owned by someone that has not brought them up to current rates because they've not improved them. This includes interior and exterior and landscaping etc. While this is costly up front -- the return is a higher/above market rental rate. Rental rates control cap rates - cap rates control the selling price.

[GregWeld]

I hope everyone is ready with a little cash for the big sale that's on!

No question the market has been a little "hot" --- I've not bought anything of note for awhile now... and was sitting on quite a bit of cash....

I put in some limit orders today that got filled.

I put SOME money to work -- I did not rush in.... and I had predicted early this morning that the selling would accelerate at the end of the day. The market is subject to program trading -- and MARGIN CALLS which come at the end of the day.... Oh yeah buddy -- you trading out on margin -- it's going to be real painful as these folks are forced to sell at any price. I've watched this a zillion times..... I NEVER am on margin. You're just asking to get hammered.

REMEMBER ----- you'll never buy at the bottom --- it just won't happen because nobody knows what the bottom is and when to finally put your orders in. Just be selective -- use your best judgement - and if the price is higher than when the dust finally settles -- so what....

My advice is usually --- WAIT --- wait until the market stops going down and begins to flatten out or turn up. You're not going to get the rock bottom price anyway -- so waiting and paying up a little doesn't hurt the long term investor. I bought some stuff today more for flipping than for "investment" - but I bought stuff I'd buy anyway..... and I have my eye on a few more names that I'll just kick back and watch a bit.... and nibble at.

The stuff that's been the hottest - is most likely going to be the stuff falling the hardest on the way down..... Think about it -- some stuff is up 50% in a year or less.... lots of people are going to want to try to capture that gain.... and ALSO REMEMBER that for every seller --- there's someone buying... the stuff doesn't just fall in to a black hole. The market was down 1600 points and came back to close down 1175..... so money came in to scoop up those stocks.

[NOVA]

So here is a question that is a bit unique.
My company was bought out by a large company, we are now switching over to the new companies Insurance, 401k etc.
So my old 401K was through Vanguard, the new company uses Fidelity.

I look into my Vanguard tonight and see the monies are no longer there, I go to Fidelity to see that they are not there yet either.

So did I get ironically "lucky" with my money not being in the market with the last couple of days of sell off ? anyone here ever had a similar situation ?

[GregWeld]

Originally Posted by NOVA

So here is a question that is a bit unique.
My company was bought out by a large company, we are now switching over to the new companies Insurance, 401k etc.
So my old 401K was through Vanguard, the new company uses Fidelity.

I look into my Vanguard tonight and see the monies are no longer there, I go to Fidelity to see that they are not there yet either.

So did I get ironically "lucky" with my money not being in the market with the last couple of days of sell off ? anyone here ever had a similar situation ?

It can take several days to complete these transfers.....


So did you see CASH in the accounts ---- or did you just find nothing??