Category: Investing Strategy

DidoSphere’s Simplest Path to Wealth – Investing – TIME YIELD the 2 main ingredients in an Investment Recipe

didosphere investing time & yield the two main ingredients in an investment recipe

If only…I could have been on my yacht today fishing in the Bahamas

 

‘DidoSphere’s Simplest Path Wealth’ – Time Yield – At age 30, most of us know very little about money.  Even those who graduated with a finance or accounting degree will encounter difficulties in putting the theories they learned in college into practice when they get to the real world.  If I knew then what I know now, I could have retired at 55 and could have been spending my days on my yacht fishing in the Bahamas and drinking fine wine in the evenings.  The problem when we are young is that we are too skeptical to listen to good advice due to many years of indoctrination.  We have been listening too long to quips such as, “If something sounds too good to be true, it probably is”.

The decade of the eighties was a period when I tuned out to music-radio and tuned in to talk-radio.  I took in a lot of talk radio, close to 12 hours a day.  I know very little about 80s music but I learned a lot about politics, sports, sex and money from radio personalities who flaunted their knowledge in their respective areas of expertise. I kept a small radio next to my early version PC (personal computer) and listened all day long, non-stop to various talk show programs, switching back and forth to NYC stations, WABC, WNBC, WOR and WMCA while laboriously tinkering with budgets, forecasts and analyses on Lotus 123.  I slept with the radio on much to my wife’s chagrin, albeit I was using headphones. I listened to political discussions, travel, sex, sports, real estate and finance.  Most of the programs were “call in” shows meaning listeners called in to voice their opinions, challenge the host or ask for advice.  Although I was amused with Dr. Joy Browne’s sex advice and Bob Grant’s ultra-conservative antics, the ones I enjoyed the most and found most useful were the financial advice shows of Bruce Williams, Bob Brinker and Bernard Meltzer.  Come to think of it, I never called into any of those shows, but many of the callers’ problems mirrored my own, so I implemented many of the solutions the hosts propounded.  I learned a lot from those shows but one of my biggest regrets in life is not listening to Bruce Williams’ advice.

Bruce Williams’ Advice

 

On one of his shows in the early eighties, right after his usual, “Welcome my friends, welcome to my world” intro, Bruce Williams went right into the news of the day.  I can remember as if it were yesterday, he said, “In today’s financial news, you can now buy a non-callable 30 year T-bond (30 year treasury bond) with a guaranteed interest rate of 14.5%.  Imagine my friends, if you invest your $50,000 today you will have $2.5 million in 30 years.  You don’t have to invest in anything else.  You don’t have to buy gold, real estate or do anything fancy.” I did not follow the advice, not because I did not have the cash (in fact my wife and I had close to $100,000 in the bank by then) but because, 1) 30 years is such a long time and retirement at that age was the furthest thing from my mind, 2) the advice simply sounded too good to be true.  It sounded so incredible in its simplicity, it cannot possibly work, so I thought.  There must be a catch somewhere.  So I cast it off as satire or hyperbole from a talk show host always on the look-out for ratings.  How wrong I was!!!  Imagine my friends, had I followed this sound advice from a talk show host, with little risk, my $100,000 would have grown to $5 million in 30 years.  I could have retired in my fifties, in pursuit of Marlin on my own 40-foot fishing boat off Cabo San Lucas.  Instead, I squandered a big chunk of my money pursuing riskier, more exotic investments (See Chapter, “Isn’t There a Better Investment Strategy?).   Today you will find me still tinkering with budgets, forecasts and analyses, albeit on excel which is faster than Lotus 123, so I have a little extra time to write books that I hope will someday become best sellers.   Read more:  DidoSphere’s THE SIMPLEST PATH TO WEALTH, an Amazon Kindle Book.   https://www.amazon.com/Simplest-Path-Wealth-Turn-Million-ebook/dp/B01KPQB0OS/ref=sr_1_6?s=digital-text&ie=UTF8&qid=1509563427&sr=1-6&keywords=didosphere

 

July 20, 2017, BUY YOUR PRINCIPAL RESIDENCE NOW!

July 20, 2017, BUY YOUR PRINCIPAL RESIDENCE NOW before it’s too late.  Home values will be going up soon and interest rates have been at historical lows.  Download this book from Amazon, “THE SIX MILLION DOLLAR RETIREE” for more information:

https://www.amazon.com/Six-Million-Dollar-Retiree-retirement-ebook/dp/B073XTL47J/ref=sr_1_4?s=digital-text&ie=UTF8&qid=1500564096&sr=1-4&keywords=didosphere

Brian Lund, freelance writer wrote this article on July 19, 2014, “The Worst Investment You Can Make: Buying a Home”.  http://www.dailyfinance.com/2014/07/19/the-worst-investment-you-can-make-buying-a-home/ .

In his article, Lund claims that you will end up saving $3 million if you rented a comparable house instead of owning one for $350,000. That is, if you invested the savings you will realize by renting instead of owning a comparable house. Lund adds, “Of course there are numerous tweaks you can make to this scenario -– for example, factoring in your home’s price appreciation or the tax benefits -– but no matter how you slice it, owning a home doesn’t come anywhere close to making financial sense.”

I can cite a few problems with his article:

  1. He uses a 30 year fixed rate at 4.5% interest. Today you can get a much lower rate for a 15 year fixed.
  2. He assumes that the rent for a comparable dwelling is 75% of the monthly principal and interest payment and has no provision for rent increases over a period of 30 years. This is ridiculous.
  3. He does not factor in the loss of interest mortgage deduction and real estate tax deduction that will generally put the homeowner into a lower tax bracket. Conversely, he does not consider the fact that there is capital gains tax on the interest the renter’s savings earns, so it can put the renter in a higher tax bracket increasing his marginal tax rates, perhaps from 15% to 25% to 28% to 33%.
  4. He assumes zero appreciation for your home. There is no way to predict if housing is going up or down but assuming zero appreciation over 30 years is unrealistic. According to the National Association of Realtors (NAR) existing homes appreciated 5.4% annually from 1968 to 2009 on the average. The nationwide average annual increase of existing homes from 1987 to 2009 according to the Case-Schiller Index was 3.4%. Also, at the time of writing, there is a $250,000 ($500,000 couple) capital gains exclusion on the profit realized on the sale of a principal residence. See IRS Publication 523, https://www.irs.gov/taxtopics/tc701.html
  5. Check on the above mentioned IRS website to see if you qualify for the exclusion. On the other hand, long term capital gains are currently taxed at a rate of 15%, see IRS Publication 551, https://www.irs.gov/taxtopics/tc409.html
  6. He neglects to consider that after 15 years when your house is paid off, you pretty much live rent free. Yes, you will still pay for real estate taxes, upkeep and higher insurance and utilities than a renter pays but the house is yours. Real estate taxes will continue to reduce your taxable income even after mortgage payments end if you itemize.
  7. Finally, he fails to consider that many people will not save the savings they will realize by being a renter. They will find a way to spend it.

In his article “Five Things You NEED to Know before Buying a House”, James Altucher declares, “I hate buying houses. I don’t “hate” many things. But I’ve lost millions of dollars buying houses. The stress is unbearable when you need to sell. And you have no money when you need it. It’s a prison. The white picket fence is the prison bars. The bank is the guards looking in. And the need to protect your family keeps you in a solitary confinement of guilt and anxiety and stress.”  Wow James you’re a real loser!  Who can lose millions of dollars in real estate?  The truth is James is really telling the truth.  He really had a string of bad luck that most people will never experience.  No one can lose millions of dollars in real estate without really trying.  Especially not if the subject real estate is your principal residence.  James Altucher indeed lost at least $2 million in real estate. He was unlucky enough to buy at the wrong place at the wrong time.  Real Estate burnt him that is why he hates real estate and won’t go near it anymore. As the story goes, Mr. Altucher bought a $1.8 million condo in the Tribeca section of Manhattan which is in the downtown area not far from Chinatown.  Then he put in $1 million in renovations. Shortly thereafter, the 9/11 attacks happened. He ended up selling his condo for $1 million.  So I guess he was not exaggerating after all.  Contrast his luck with that of a distant relative of mine who is in the advertising industry and claims NOT to know anything about real estate.  Let’s call her Jane.  She bought a pre-construction 2-bedroom condo at the Orion building near the Port Authority bus terminal in NYC.  Jane went into contract in 2006 for a pre-construction sale price of $900,000.  When the unit was ready for occupancy in late 2007, its value had already increased to $1.2 million. Moreover, the building had a long waiting list of buyers. For some reason not disclosed to me, 3 years later, Jane went into contract to buy another 2 bedroom unit at the just completed Rushmore building on Riverside Blvd in the upper West Side.  The pre-construction price of her unit was $1 million.  To make a long story short, she sold her Orion unit for $1.7 million and bought the Rushmore unit for $1 million. How is that for buying low and selling high to make a hefty profit?  And here’s the kicker. She got a 3% 15-year fixed mortgage loan and her 2 bedroom condo which is now worth at least $2 million. Call it fortuitous timing or the luck of the Irish, but certainly, real estate treated Jane much better than it did James.

I admit I’ve lost thousands (not millions) of dollars in rental properties which is why I will NOT recommend them, but rarely can you go wrong in owning your home.  Do the math and make sure to consider all the different factors and you will see that typically, owning your home is cheaper than renting a similar dwelling.  With regard to Altucher’s calling a house a prison, an apartment is also a prison only smaller. The landlord is the warden looking in.  You can be thrown out of jail within months if you do something the warden does not like.  On the other hand, maybe you can stay for 3 years in your house even if you stop paying the mortgage. It takes a long time for banks to go through the foreclosure and eviction process and on top of that there are many delaying tactics you can employ to delay foreclosure and eviction. Even after foreclosure the bank may have a hard time throwing you out on the street.

June 16, 2017 – Do you notice the Yield Curve narrowing?

Do you notice the Yield Curve narrowing?

Hi Folks,

As I’ve explained in my book, “Dow to Drop 80% Soon?” one of the best predictors of a recession is a negative yield curve.  The yield curve is inverted when long term yields are lower than short term yields. The yield curve inverted just prior to every U.S. recession in the past 50 years.

https://www.amazon.com/Dow-drop-80-soon-Protect-ebook/dp/B01KPQB0OS/ref=sr_1_3?s=digital-text&ie=UTF8&qid=1497621601&sr=1-3&keywords=didosphere

As of June 15, 2017, the yields between the 10-year and 30-year treasuries have been narrowing, i.e. 10-year is now 2.16% and 30-year is now only 2.78%.   See the government website below:

https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

When the yield becomes negative or inverted, market sentiment suggests that the long-term outlook is poor and the yields offered by long-term fixed income will continue to fall. It also spells trouble for the financial sector as what started happening in late 2006.  The incentive for depositors to leave their money with the bank for longer periods of time, say 5 to 10 years is to earn a higher interest rate. If the interest rate of return is the same or less for 5 years compared to 1 year, this incentive is gone.   This means that profit margins fall for companies that borrow cash at short-term rates and lend at long-term rates, such as hedge funds, banks and mortgage companies.  Equity lines of credit and adjustable rate mortgages (ARMs) which are periodically adjusted usually go up since they are based on short-term interest rates.   Debtors who got stuck with these loans will need more money to pay for additional interest.  They will need to tighten their belts since they will have less money to spend on consumer goods that is why recessions follow an inverted yield curve.

Although we are at record high territories in the stock market, with the Dow trying to breach the new resistance level of 21,700, we live in dangerous times.  I see the Dow can quickly lose 3,000 in just a period of 10 to 20 days.  The reason for this stock market high is the pro-business stance of this administration even though not very much has come to fruition yet, i.e. the talk about curtailing burdensome regulations, lowering corporate, capital gains and repatriation taxes and increasing the defense and infrastructure budgets.  Investors are optimistic that Trump’s government technocrats will continue to develop policies that will increase our GDP which should keep recession farther away in the horizon.

 

 

Stock Market Correction coming soon?

Folks, even though the Dow breached the resistance level of 20,000 a couple of weeks ago, I smell a 5% to 15% stock market correction knocking on our doors.  In fact it is overdue.  The last correction happened over a year ago. It was triggered by relatively benign news, i.e. there was an oil glut and the price per barrel dropped to below $30 in January 2016. The regular Jos Schmo would ask, “Why was that bad?”

Economists and political pundits think that the reason for the record surge in stocks is due to Pres. Trump’s pro business posture, i.e. lower taxes and less regulations.  Doing away with burdensome regulations should be relatively easy to do.  The administration does not even have to issue executive orders.  The government can just stop enforcement.  Lowering taxes is harder to accomplish.  We are looking for the correction to happen around April or May.

Trump goes to war with the mainstream media but the stock market keeps going up.  Genius or mad man?  A presidency in disarray or a fine tuned machine?  The smart money is betting that Trump is a genius and the administration is a fined tuned machine.  Smart money keeps pouring into the stock market.  Should you be a contrarian and bail out now that all the major indices have reached all time high?  The answer is are you in for the long term or do you want to gamble a little bit.  If you do, get out of the market now and put all your money in a money market fund (stable fund) because I think a correction is overdue. Wait until there is a major correction of 10 to 20%, then jump back in.  Remember that if you are out of the market, you will die each day you hear the major indices reach record highs.  If you adopt this strategy, sit back have a beer and watch TV until you hear the DOW is back down to 18,500.  Then jump back in.  Good luck.  I’m not a gambler. I will stay put and ride the tide if my portfolio loses 10 to 20%.

 

01/10/2017 – When will the Trump bubble burst?

Dear Readers,

The Dow is really trying to surge through the resistance level of 20,000.  It may do it this week or there may be a 5-20% correction before breaking through that resistance level.  Many stock market experts have turned bearish pointing to the longevity of this bull market, overvalued stocks, Trump’s tweeting habits and what many political pundits consider as dangerous casual comments about serious global problems such as US, Russian relations and North Korea’s threat to continue to develop nuclear weapons capable of reaching parts of the USA.  Trump’s reply in a tweet, “it won’t happen”, is considered by many as proof of Trump’s lack of experience in dealing with global matters. Many investors are poised to bail out of stocks before inauguration day. Many stock market experts and some respected economists are even predicting a recession this year. Most investors will stay and weather the bumpy ride through the first 100 days of Trump’s presidency. There will be wild fluctuations but I predict there WILL NOT be a recession in 2017.  Be reminded that in general, stocks will lose 30% to 60% of their value during the bear market that follows a recession. When will it happen?  When should you get out of the stock market?  Read my exit strategy in, “DidoSphere LIVING RICH AND LOVING IT”.

Correction before Dow 20,000?

Correction before Dow 20,000?

Dear Readers,

Just like I said in my previous post, we may experience a 5-10% correction before breaking through the resistance level of Dow 20,000.  It has been 2 weeks now that the Dow has been hovering around the resistance level of Dow 20,000 but has not closed above that. We may be in dangerous waters although in the long run I still feel bullish about stocks. Read my book “Living Rich and Loving It”, to find out when you should really get out of stocks and put your money into a money market fund.  Merry Christmas, happy holidays and a prosperous New Year!!!

Dow 19,500 resistance level breached. Entering the danger zone

Hi Readers,

After Dow 19,500 resistance level was breach on Wednesday, Dec 7, we are looking for a new resistance level of 20,000.  A serious correction of 5-10% may happen before reaching Dow 20,000.   There will be profit taking and the gnomes of Wall Street are just waiting for a slight whiff of any bad news to dump some stocks and get back in after the correction.  For now, those who stayed with me and did not panic and did not get out of the market before election day, let’s open some bottles of champagne  this weekend, congratulate ourselves and enjoy this Trump rally. Just remember our long term outlook. If Trump’s proposal for lower taxes sails through the Republican Congress and Senate, we will have a lot of foreign earnings coming back into our economy. A lot of it will find its way into the stock market.  Let us check back if/when the Dow breaks past our new resistance level of 20,000.  Have a great weekend!

Don’t mix investing with politics

November 22, 2016

As of today’s closing, all the U.S. stock market major indices reached record highs.  The Dow closed above the resistance level of 19,000.  In the short run, the stock market will not have a “stairway to heaven” type of climb. I guarantee there will be dips at the slightest whiff of any bad news. Remember the first quarter of this year when the price of crude dipped below $35 per barrel? Moreover, there will be profit taking by the Gnomes of Wall Street.

The new resistance level we are looking for on the Dow is 19,500.  There may be a 10% correction before reaching this resistance level.  The climate has suddenly changed with the election of Trump.  The Gnomes of Wall Street, or perhaps we should call them the shepherds leading the flock suddenly decided that a Trump presidency is good for the economy.  Does anyone even remember that the Dow futures were 800 points down on election night as Trump started winning the battleground states one by one?  What was that all about?  Even though the market opened higher on the day after Election Day, my friend Jake got out of the market as soon as it opened at 9:30, Wednesday morning and put his entire portfolio into a money market fund. He voted for Hillary and was afraid that Trump’s victory would precipitate a global equity sell-off because he believed that Trump is an unpredictable, unstable and unqualified leader who’s the laughing stock of the whole world.  Even after the Dow gained 1,000 points, my friend Jake is still out of the stock market.  He told me last night he “cannot believe why the market keeps going up”. Don’t mix investing with politics, folks. Happy thanksgiving!!

Most Economic Indicators Pointing Upwards

It has only been over a week since the voters elected Trump and housing starts are up, unemployment claims have been the lowest since the great recession, retail sales look strong, corporate profits are up, the Dow gained more than 5% since the election. Happy days are here again?  We’ll see.  The uncertainty of the US elections kept the stock market stagnant for almost a year.  So this is a post-election bump that still has legs.  Trump’s pro-business policies of curtailing government regulations, lowering corporate, capital gains and foreign earnings taxes are meeting with great enthusiasm from the gnomes of Wall Street.  Look for a correction around Dow 19,500.  The correction could be 5-10%. Follow this blog so we may discuss the possibilities.

 

 

After the dust settled…

Wednesday morning after Election 2016, the 1,000 point drop in the Dow that many so-called experts predicted as they were watching Trump beat Clinton one battle ground state after another did not happen after all.  In fact stocks are not only in the positive territory at noontime eastern standard time but had healthy gains of 1-1.5%.  Still Myles Udland, a financial writer for Yahoo Finance says, “…don’t mistake Wednesday’s rally for an “all clear” sign from markets. The unknowns around any new presidency are considerable, and perhaps no recent administration presents more question marks for investors than  a Trump White House”.  Adam Parker, a strategist at Morgan Stanley, wrote in a note to clients on Wednesday that, “We are more bearish today than we were yesterday because of increased uncertainty.”

Frankly, I am tired of listening to these geniuses and shame to investors who blindly listen to them.  These are the same type of geniuses who led investors on the wrong path in 2008.  After investors lost 50% of their savings during the bear market that followed the great recession, these geniuses told them to get out of stocks.

Go ahead, listen to Udland and Parker.  Get out of the stock market now and you’ll be sorry.  I say this because Trump’s fiscal policy is pro-growth.  Low taxes, less government regulations, repatriation of foreign profits, possible repeal of Obamacare, infrastructure investments, etc.  Of course I am concerned about a few uncertainties such as Trump’s promise to replace Janet Yellen whom I think is doing a great job and protectionism but I don’t think Trump would act recklessly with regard to these two concerns.  He has VP Pence and other technocrats to hold his hands. So when will the stock market crash? We will exchange thoughts and ideas. Follow this blog and learn.