You Will Achieve What You Think…
It’s ironic how 2012 and 2013 played out economically with what we’ve seen with investable assets such as real estate, stocks, and cash flowing businesses. While some focused on doubt and negativity, what was overlooked were two factors I have always espoused. Never and I mean never loose sight of the Human Spirit. We simply are not wired to give up. Secondly, never fight the FED. What we continue to see is that our economy that was grounded to a halt (for a nano second) has slowly been chugging forward with all the ingeniuty that mankind knows….
In the article, “2012 The New Frontier…” I stated:
“you have read my thoughts in the past, I will repeat a Mantra that rings true: Do not fight the FED. Now -they are agressively fighting off an economic depression that quite frankly most don’t realize how vulnerable we are; however, I am not advocating a ‘the sky is falling mentality’. Don’t fall for people that want to sell you something or an excuse to continue doing nothing. We all have to eat and maintain a living -you won’t do that hiding in a bunker eating food out of can and sitting on a pile of gold.
Wealth is created in times of uncertainty.”
So here we are. Home prices are up. The S&P is at an over-all high. Gold has gone from 2100 to 1200/ounce and income investors cannot survive off of paltry 1% rates of returns with basic CD’s.
What we risk now are bubbles in over priced investments… Notice that I don’t say “Real Estate” or “Stocks” as a generalization are in an asset bubble. Why? Because every single investment should be viewed on it’s individual merits, your intended duration of time, and the ability to make a return on investment (IE: rents, interest, dividends) while invested.
At this time of year I always pause and take time to pull back and reflect and feel that 2013 is particularly important. You see we have had a lot of success in certain aspects of investing. Let’s take a look.
One must remember that what may work as an investor may have nothing to do with the real economy -Wall St. & Main St. do not always go hand in hand. With the FED creating ‘cheap money’ financial assets will be under pressure to go upwards, corporate earnings continue to hit record highs, and although the efficiencies of this theory of economics is lessoning, employment prospects continue to improve. If your seeing resistance, I urge you to change your perspective and seek new opportunities -as they do exist.
So…, while I say opportunity exists, do not mistake highly risky investments for solid every day steady eddy’s. I am a true proponent of value investing -seeking those which are undervalued and being paid while the coal begins to sparkle. Diversification is key. One of the biggest mistakes made is in heavily concentrated investments. As a real estate investor, I will recommend you diversify into mutual funds, stocks, bonds, etc. These are investments that can be pledged to grow a business or make a new real estate investment or even leveraged at attractive interest rates. Banks like liquid investments and if you havn’t realized it after the 2008 Great Real Estate Depression: Real Estate is an illiquid investment.
If you’ve been following me for the past few years, I started to dip the toe into new opportunities in 2010, and then uppd the ante by going full force in 3 distinct directions in 2011, and have not seen anything but full steam ahead since. My investments: Solid cash flowing dividend paying stocks, real estate investments, and new investements in my hard money lending business and internet operations.
- Stocks– the S&P has reached new highs as the risk to reward spreads have lessoned. Focus on Dividends. Blue Chips as a generalization. Some of my favorites: Arrow Financial Group, AT&T, Bayer, Chevron, CitiBank, Duke Energy, Enterprise Products Partners, Kraft Foods, Phillip Morris, & Verizon. No investment should comprise more than 3-5% of holdings and for smaller investments, mutual funds should be considered. A few I like are Columbia Acorn, Dodge & Cox Large Cap, Harbor International Fund, Matthews Asia Dividend Fund, & Third Ave Value. NOTE: These are just opinions (as we all have them 🙂 ) and should not be followed for investment advise -consult a professional.
- Bonds -as a generalization w/out large sums to invest (>$100k+) one should be diversified in bond mutual funds; however, with rates at all time lows this asset class is suspectible to major corrections of 15-25% when rates tick upwards. Tread cautiously as a generalization (unless you truly know how to find diamonds in the rough -proven experts only) and consider laddered investments.
- Real Estate -the two basic plays have been true cash flow value investements into solid A & B Class Real Estate Investments and Rehab-to-Retail plays with rehabs and new construction. Our local sweet spot for the past 2.5 years has been new construction in the $350k to $800k housing market. Just like stocks -prices have run up -Be Careful. Almost any investment in the past 2-3 years (unless you just paid retail vs. wholesale as we investors espouse) is up 10, 20, 100%+ in valuation. Don’t mistake what the FED has done for you with intelligence. Keep your ego in check & re-access everything.
While I am an advocate of making investments for your future, I believe the near-term stock markets are suspetible to a 5-10% pull back and real estate will see head-winds. That doesn’t mean Stop though. Keep powder dry to make investments during market pullbacks. The key is true valuation -either creating it or creating forced apprecitation. Check out “Ripe with Opportunity”
For those who have been going “All-In” and making more concentrated investments (such as myself), I think now is the time to take a little money off the table and re-deploy that investment capital into less risk and/or diversification. I do believe continued employment gains, household formation, new construction supply constraints, and record low affordability with low interest rates will continue to allow a positive increase in real estate assets (as a generalization) in the mid single digits for 2014 with interest rate fears and existing home-owner sales keeping a lid on excess. There is no clear trend to truly capitalize on other than micro niches and the over-all full steam ahead of improved housing sales (or at least compared to 08, 09, and 2010). Take a step back and look for new investment niches. Locally I believe the $150k to $350k housing markets are opening back up for smaller investors as the hedge funds pull back and the ability to wholesale homes is up to 60-70% of 2006-2007 numbers.
Here is the biggie. The banks are moving back in. We are seeing for the first time, large movements into investments (or making new loans) into the real estate investor market. Think hard about this and how it will effect your operations and were opportunity may present itself. For those going full charge, I caution you to remember the increased supply of money will create more competition -sharpen your skills or your house will just become a number -keep an eye on housing supply. Locally we are still in a Sellers market. We will still need 30 year Fixed Lending for Landlords to come back before true wholesaling will hit its stride but don’t take that as an excuss that wholesaling (or flipping) isn’t happening. We are seeing the days of $5k, $10k, and $25k premiums being achieved.
So while I say 2014 isn’t more of the same…., I do say it will continue forward. I don’t suspect the FED will tighten up within the next 14 months. So continue forward just don’t push what is true value into over-valuation.
Now. Focus your energy. Get up & Go Do IT!!!
