# Investing in Stocks vs Real Estate



## PerryM (Oct 8, 2007)

*Paying big money to fail...*

This seminar has a positive outlook and outcome - therefore a fee must be charged. The drive-by media is "free" it forces a steady diet of doom and gloom on us through thousands of newspapers, TV, cable, books - *humans seem to need to feel guilty about something to feel good about themselves * (I said that) - go figure.

Anyway, I suspect that 95% of the folks paying money fail at this scheme and the 5% that do succeed go on to sell books/courses to the 95% that fail.

It's not just this real estate scheme - the stock market has the same track record of failures but folks pay big money to learn how to fail there too.

Oh well, enough doom and gloom from me today - see how easy it is.

P.S.

BB all the best.  Let us know how it goes.

P.P.S.
The DJIA has averaged 13.3% since 1933 (Before that the stock market was really a futures market with 5% cash - any wonder why the huge crash back then - thanks US government)

Maui has averaged 9% for 35 years.

My suggestion to those who want to invest in real estate is to buy something you can use and enjoy it.  If you want fast action try Pork Bellies - I know it puts a little kick in me.

It's hard to outdo the DJIA over a long period of time.  Just buy DIA (Diamond trust which is an artificial stock that mimics the DJIA)  

On Oct 9, 2006 the DIA was $118.62 a share - this very second it is $140.52 - (Throw in 4% dividends for the year) that's a 22.5% increase in 12 months.  You can margin 50% of your portfolio and in essence double that to *45% in 12 months*.

It is a VERY liquid market and in 3 days you can have your cash in your hand.  If you want fast action with all kinds of protection then just leverage (margin account) your savings to the eyeball and you will do much better over any period of time.

That's what I do - I just by DIA and never sell it.  I don't margin much - just for some excitement.  Now compare this to wheeling and dealing and see which is going to do better for you over 20 - 40 years of investing.

I can not overemphasize what I just said:

*In the past 12 months my net worth is up 22.5% - what's in your wallet?*


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## Steamboat Bill (Oct 8, 2007)

http://finance.google.com/finance?q=dia

I did not realize DIA paid such a nice dividend.


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## BocaBum99 (Oct 8, 2007)

PerryM said:


> This seminar has a positive outlook and outcome - therefore a fee must be charged. The drive-by media is "free" it forces a steady diet of doom and gloom on us through thousands of newspapers, TV, cable, books - *humans seem to need to feel guilty about something to feel good about themselves * (I said that) - go figure.
> 
> Anyway, I suspect that 95% of the folks paying money fail at this scheme and the 5% that do succeed go on to sell books/courses to the 95% that fail.
> 
> ...



Perry,

Did I read this right?  You have 100% of your net worth tied up in DIA?   
I don't think there are many investors here that are impressed with that strategy.  Congratulations on a good year.

Let's look at your 7 year return.  On Oct 11, 1999, the Dow Industrial Average closed at 10,648.18.  On Oct 5, 2007, the same average closed at 14,066.01.  Over 7 years, that represents a total return of 32.1% or a CAGR of 4.06%.  Adding your 4% dividend back and you are averaging about 8% compound annual return on your money pre-tax.  Disney Vacation Club owners who rented their points out to other owners made that much money over that time period.

Let's contrast that with the Hard Money Lending business that Neil is in.  He probably loans money between 12-15% interest with 1-4 points upfront and turns his money 2-3 times per year.  

Let's run the numbers.  Let's assume 3 points, 12% and 2.5 turns.  That would be 19.5% return using simple numbers.  I'd rather be in that business.  Given that Hard Money Lenders loan at LTV of 60-70% of underlying real estate, I'd say that the risk is lower than investing in the Dow as long as you know what you are doing.


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## Steamboat Bill (Oct 8, 2007)

BocaBum99 said:


> Disney Vacation Club owners who rented their points out to other owners made that much money over that time period.



Yes...I agree...DVC has been a good "accidental" investment for me.

I also agree that DIVERSIFICATION is key. I like SPY, DIA, and QQQ. I also like many dividend paying stocks. I made a lot of $ in the 90s tech boom...but had a hard time sleeping.

Real estate investing or any type of sophisticated investing (stocks, bonds, etc.) is not for STUPID people. Having a good education or street smarts is critical to be a success in these industries.


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## PerryM (Oct 8, 2007)

BocaBum99 said:


> Perry,
> 
> Did I read this right?  You have 100% of your net worth tied up in DIA?
> I don't think there are many investors here that are impressed with that strategy.  Congratulations on a good year.
> ...




If you want to invest in the stock market there is but ONE stock to buy - DIA.

We have real estate holdings too.  I'm not addressing them right now.

But yes, 95% of our stock portfolio is DIA.  You can then use all kinds of creative things on top of this.

P.S.
When comparing rates of various investments you must use the longest average you can find.  For the DJIA you get 13.3% for 74 years.  That's 13.3% compounding year after year with NO decisions needed - just buy and hold.

Now I do day trading but that accounts for a fraction of our net worth.


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## Kagehitokiri (Oct 8, 2007)

> there is but ONE stock to buy



perry, you are speaking for conservative stock investors, no one else..

my uncle is pretty conservative. he does S&P500 spiders, and 2 stocks - apple, and 1 pharmaceutical. hes been selling a lot of his apple stock (gradually) over the past few years. he has an account with fidelity where he can do everything himself.


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## PerryM (Oct 8, 2007)

Kagehitokiri said:


> perry, you are speaking for conservative stock investors, no one else..
> 
> my uncle is pretty conservative. he does S&P500 spiders, and 2 stocks - apple, and 1 pharmaceutical. hes been selling a lot of his apple stock (gradually) over the past few years. he has an account with fidelity where he can do everything himself.




Why does one invest?

If the goal is to accumulate money for retirement then DIA is the SOLE answer.

If the goal is to play Vegas at home then you can pick any stock you want and flip a coin - Heads; I'll go long, and Tails; I'll go short.

I'm accumulating money to be self sufficient and retire.

But everyone has their own reasons to invest - that's what makes America so great.


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## BocaBum99 (Oct 8, 2007)

PerryM said:


> If you want to invest in the stock market there is but ONE stock to buy - DIA.
> 
> We have real estate holdings too.  I'm not addressing them right now.
> 
> ...



You are using the rear view mirror to assess investments.  That is always dangerous.  But, since you are so diversified, you should be okay over the long run.  

Even then, you need to make adjustments for the over all macrolevel economic conditions to forecast your likely return.

Over the last 25 years, I just calculated that Dow Industrial average has a capital appreciate of approximately 11.1% CAGR.  If the dividend was 4%, that would be an annual return of about 15% for 25 years.  That is a fantastic return.

However, during those 25 years, there was also a corresponding dramatic reduction in interest rates.  Interest rates tend to be inversely related to stock prices over the long haul.  So, there is reason to believe that over the next 25 years, the Dow will under perform the last 25 years.  11% seems more reasonable.

Not bad if the alternative is cash.  But, not great if you want to do more than passively invest for modest gains.


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## PerryM (Oct 8, 2007)

*Look to the moon....*

The best way to appreciate the stock market is to go down to the beach (by a sea) and watch waves crash on the beach.

Now try to guess when the next one will come in and how high it will be.  – It’s all random.

How would one make money betting on crashing waves?  Simple – look up the moon tides and bet longer term – the highest wave for the day and the lowest wave for the day based upon a sea rising and falling twice during the day.

Same with the stock market.  ALL stocks are bound to the DJIA – do a study of any stock and watch it’s Alpha and Beta – they are ALL tied to the market which is the DJIA in one way or another.  When panic sets in and the DJIA is tanking its very hard for folks to buy anything.  The opposite is true to – DJIA up 300 points today and folks buy stocks, any stocks.  The talking heads simply hype the fact that the market is up or down - they don't know a thing.

There are stocks that move opposite the DJIA, like gold stocks, but on the whole gold is simply just a “Place Holder”.  1 troy oz of gold could buy you 2 nice suits 500 years ago and that’s what it will do today.

So buy any stock you want and you are just buying a poor substitute for the DJIA (DIA is the DJIA)  why not just buy the DJIA?  The DJIA is displayed on buildings, the talking heads each night report it, it’s all over the internet.  Everyone kind of knows what the DJIA is – about 14,000 now.

Any stock you pick is based upon the DJIA and has random oscillations thrown in which are impossible to forecast.  The DJIA I can forecast – 13.3% is its average in the next 12 months.  What’s your average for any other stock?  It’s anyone’s guess.

DIA is composed of the 30 dow stocks - plenty of diversification around the world.


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## Steamboat Bill (Oct 8, 2007)

PerryM said:


> DIA is composed of the 30 dow stocks - plenty of diversification around the world.



I agree with 90% of this.

Yes, 95% of all professional stock managers (and novices) can NOT beat the Dow over a 10 year or longer period...I find that amazing.

Thus, putting everything into DIA is not a bad idea....it is just not a good one either.

I would suggest something like this for a stock portfolio.

50% DIA
25% SPY
25% International

Of course your stock portfolio should not represent 100% of your net worth....I am guessing something like this distribution for total net worth.

40% Stocks
20% Bonds
10% Cash
30% Real estate (including TS, fractional, DC, condo-hotels, etc.)


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## PerryM (Oct 8, 2007)

*My chili recipe is...*



Steamboat Bill said:


> I agree with 90% of this.
> 
> Yes, 95% of all professional stock managers (and novices) can NOT beat the Dow over a 10 year or longer period...I find that amazing.
> 
> ...



Sure, everyone has their own recipe for chili and how to divvy up their net worth - I have mine, you have yours.

We do have gold and silver coins and 30 days of emergency food and water - we live in one investment, our home.  But my recipe after spending 20 years of day and night analysis of investment vehicles is the DIA.

Take it for what you paid for it.


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## Bourne (Oct 8, 2007)

I follow a different rule of thumb for my investing style. 

50% of it is liquild assets i.e. Equities, Private Equity, etc... that are managed by Northern Trust. The wife gets a 33% discount off management fees.  

The other 50% is in real estate. I started with my own home and took out a HELOC on it. Bought the unit next door at 30% down using the HELOC. The rent covers the payments, assesement, taxes etc. Once the HELOC was paid off, we bought another one with 30-33% down. Have been repeating the process every year for the past four. 

The 50/50 split is rebalanced every other year for sanity check. It is a risky bet but it is paying off. The idea is to get to a point where I have a large enough HELOC to buy units outright and turn around and refinance them. Nothing speaks louder than CASH in a real estate deal.


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## PerryM (Oct 8, 2007)

*Read this..*

Here is an example of the lunacy of individual stocks.

Does anyone think Google is worth the total assets of Coke and GM?

Buy all the Google you want - eventually reality will rear it's ugly head.


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## Steamboat Bill (Oct 8, 2007)

I actually thought Google was overvalued at $100 per share in 2004.

An interesting fact as I have several friends and VCs in Silicone Valley...many Googlers are starting to cash in a leaving the company to work for Facebook and other web 2.0 companies.

I guess that are taking the money and running.

Google is even predicted to hit $1,000 per share. I am really eating crow now.

The overvaluation of Google vs other companies could lead to a stock market crash or severe correction and I HATE it when one stock gets so much attention.


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## vineyarder (Oct 8, 2007)

> The best way to appreciate the stock market is to go down to the beach (by a sea) and watch waves crash on the beach.
> 
> Now try to guess when the next one will come in and how high it will be. – It’s all random.



Tangential to the whole stock market issue, but the above statement is not true; wavelength and amplitude are not random.  It is simply higher order wave interactions, and with a knowledge of the surface properties of the ocean floor, currents, wind, etc., the wave patterns can be predicted short term as well as long term; it just may not be intuitively obvious unless you are used to adding polynomial waveforms in your head.  Unfortunately the stock market is affected by other (non-physical) properties, variables & interactions, so it is much less predictable...


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## PerryM (Oct 8, 2007)

vineyarder said:


> Tangential to the whole stock market issue, but the above statement is not true; wavelength and amplitude are not random.  It is simply higher order wave interactions, and with a knowledge of the surface properties of the ocean floor, currents, wind, etc., the wave patterns can be predicted short term as well as long term; it just may not be intuitively obvious unless you are used to adding polynomial waveforms in your head.  Unfortunately the stock market is affected by other (non-physical) properties, variables & interactions, so it is much less predictable...



My point is why try to guess at anything?  Why try to figure out if a stock is too low or too high in price - just buy the ocean and let all boats float at various rates.


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## GOLFNBEACH (Oct 8, 2007)

PerryM said:


> If you want to invest in the stock market there is but ONE stock to buy - DIA.
> 
> .



Why not SPY?  Go back 60 years and the S&P 500 has outperformed the Dow.

Why not QQQ?  Go back 20 years and the NASDAQ has outperformed the Dow.

Want some real kick to your portfolio?  Take a look at a few funds I have owned for the past 5 years that put the Dow to shame: FIGRX (International Discovery), FSENX (Select Energy), FSDAX (Select Defense and Aerospace).

What I am trying to say is that there are many different approaches to investing, and an investment portfolio must be monitored and updated as your risk levels and timeframe changes.  To suggest that there is ONE stock to buy is nonsense.


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## Steamboat Bill (Oct 8, 2007)

Google's stock price has passed the psychologically important but otherwise meaningless $600 barrier for the first time. Want some other high-flying tickers? Try the Washington Post Company at $803 or Warren Buffett's Berkshire Hathaway -- currently trading around $121,000 per share. Of course, despite the difference in absolute stock prices, Google and Berkshire Hathaway have roughly the same market capitalization -- a perfect illustration of why the price of a stock, out of context, has no meaning.


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## GOLFNBEACH (Oct 8, 2007)

Steamboat Bill said:


> I actually thought Google was overvalued at $100 per share in 2004.
> 
> .



I bought 1000 shares of GOOG at the IPO price and doubled my money in one day.  I thought I was a smart investor - surely this stock would fall from the loftly multiples it was trading at.  Today it is over 600.  It I had held onto it I could easily afford to join ER.  

I'm sure everyone has a bunch of "if only" tales...


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## Steamboat Bill (Oct 8, 2007)

GOLFNBEACH said:


> I bought 1000 shares of GOOG at the IPO price and doubled my money in one day.  I thought I was a smart investor - surely this stock would fall from the loftly multiples it was trading at.  Today it is over 600.  It I had held onto it I could easily afford to join ER.
> 
> I'm sure everyone has a bunch of "if only" tales...



How does it feel to have a technical paper loss of $430,000-$500,000?


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## Kagehitokiri (Oct 8, 2007)

Date____Volume____High____Low___Close
08/19/04  	 22,353,092  	  104.060  	  95.960  	  100.335
08/20/04  	 11,429,498  	  109.080  	  100.500  	  108.310

10/22/04  	 36,919,840  	  180.170  	  164.080  	  172.430

how long did you hold...?


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## GOLFNBEACH (Oct 8, 2007)

Kagehitokiri said:


> how long did you hold...?



I held for about 3 months...sold just before the end of the year in '04.  Wanted to lock in my profits.


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## PerryM (Oct 8, 2007)

GOLFNBEACH said:


> Why not SPY?  Go back 60 years and the S&P 500 has outperformed the Dow.
> 
> Why not QQQ?  Go back 20 years and the NASDAQ has outperformed the Dow.
> 
> ...



Quick - what's QQQ tonight?  what about the S&P 500?

Everyone knows the DJIA - it has the longest record out there.  They are but distorted images of the DJIA.

But to each his own.

I understand that folks want flashy new things to buy - I just buy the old reliable that has been through hell over the years.


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## Steamboat Bill (Oct 9, 2007)

LTTravel said:


> Is this a Non-Traditional Interval Ownership forum or an  "I'll top that" investment forum?



Joining a DC will always "top" a TS in my opinion....


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## Steamboat Bill (Oct 9, 2007)

LTTraveler and PerryM - Let's try to keep focus on the topics and not get too personal. 

I like to give the members of this forum "more latitude" than the other forums as I find all the discussions very interesting and the posters better educated.

I feel that that a discussion on stocks and other investments is appropriate in this forum as DCs, fractionals, and hotel-condos cost a lot of money and this money "could be" better spent in other areas like stocks, bonds, etc.

I personally like diversification and balance in my life....and I feel that joining a Destination Club has actually improved the quality of my life and vacations. Joining a DC was not something I did because it was a good investment, I did it because I felt that it represented good use of my money. I have tried almost every type of investment there is and the KISS concept (keep ti simple stupid) usually works best. High Country Club is about as SIMPLE as it gets.


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## Jya-Ning (Oct 9, 2007)

Interest.  not knowing enough on investment, but very surprise to see Perry take the simplest approach and turn stock investment to put money into CD.

What happen to the risk factor and cash flow?

I thought the comparsion of investment is the return / risk.  And take each one's risk level find the best return?

And I believe current dividend for DIA is a little over 2% and SPY is around 1.6%.  If you do need to use the dividend.  Try to compansate .4% cash flow diffenrence, you need to have initial captial 25% or more.  Otherwise, you will need to sell the investment yearly.  And try to use an Excel spread sheet and use any model to play see what their return will become now.

Perry, are you sure your DIA dividend is 4%?  I thought over these years, it only pay over 2% unless you are looking at the whole live of Dow Jone index.

Also, it could easily become another Japan Index.  Which over 26 year, will give you about total 5% annual return.  IMHO, Does not matter what investment tool you are looking, if it is inside USA, you have to assume USA's economic will support a health return.

Jya-Ning


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## PerryM (Oct 9, 2007)

Jya-Ning said:


> Interest.  not knowing enough on investment, but very surprise to see Perry take the simplest approach and turn stock investment to put money into CD.
> 
> What happen to the risk factor and cash flow?
> 
> ...



The DJIA dividend average since 1933 is 4.28%
The DJIA dividend average for the past 10 years is 2.12%
The DJIA dividend average for the 10 years prior to that is 3.35%

Remember that the 30 stocks that appear on the DJIA are constantly being changed by a bunch of folks who control that average.  The last 10 years have had those guys deciding that growth stocks should be in the DJIA – that can change at the drop of a hat.


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## Steamboat Bill (Oct 9, 2007)

PerryM said:


> He was basically pitching that the American dream of owning your home and a great paying job was all wrong - then tried to convince folks to chuck the job and use other peoples money to make yourself a great life.



Using Other Peoples Money (OPM) is not as easy as it sounds. The concept of having dumb people hiring a bunch of smart people to work for them is even harder. Exceptions to this rule do exist. Get rich fast is a sure path to destruction and bankruptcy.

Trust me...I get lots of pitches to invest in all sorts of crap....I usually pass on most. Living in South Florida, when I meet new people, I now don't ask what they do for a living as I don't care and don't want to let them make me rich" with some hairbrained idea.

Almost every week in the www.sun-sentinel.com newspaper there is some person in South Florida getting busted for some type of scam where they got busted trying to rip people off. Unfortunately, it has made me very skeptical of new people I meet.

Investing in DIA is actually good and sound advice. Paying off all your debits (even your mortgage) is even better advice. That is why I like KISS...if it is too complicated...forgetaboutit.

According to Yahoo Finance DIA is currently paying a 2% yield and has a P/E of 15.1.

http://finance.yahoo.com/q/bc?s=DIA&t=my


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## PerryM (Oct 9, 2007)

The great thing with using a Margin Account and the DIA is that you can double your positions if you so wish.  e.g. say you have $500,000 in DIA & cash, you can then buy another $500,000 in other stocks and play stock mogul all day.  You can go long or short and just have a ball.  All the while you average 13.3% on your base DIA.  You are charged interest on the margined stocks - right now that’s 8% on $500k.

You can day trade if you believe you can forecast the future and be flat at the end of the day – no worries overnight.  There are lots of creative ways to use the old boring stock DIA.  However, do this for 20 years and you will realize that the DJIA and DIA represent the market in general and there is little need to invest elsewhere.  Certainly you don’t need a mutual fund that will 95% of the time underperform the DJIA.  If you want to get into foreign stocks then you not only play their game, which may be rigged, and you also play the exchange rate between US dollars and their currency.


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## Jya-Ning (Oct 9, 2007)

PerryM said:


> The great thing with using a Margin Account and the DIA is that you can double your positions if you so wish.  e.g. say you have $500,000 in DIA & cash, you can then buy another $500,000 in other stocks and play stock mogul all day.  You can go long or short and just have a ball.  All the while you average 13.3% on your base DIA.  You are charged interest on the margined stocks - right now that’s 8% on $500k.



8% margin rate is real, you will have to pay it no matter what happen.  13.3% is book, it is avg.  And you may loss when market take a down turn.  In the long run, you are adding 5.3% return assume US economic can keep its pace, but risk lossing big time when market take wrong turn and you get margin call.  You are simply increase your risk level but does not get same return.

Why need to make a simple method become more complicate.  It is much easy to buy some emergence country index or special sector index nowadays if your goal is to increase the return.

On the other hand, you may know the big market very well, so there is not much risk increased.  If that is true, you can buy special sector index as well.

Jya-Ning


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## GOLFNBEACH (Oct 9, 2007)

PerryM said:


> However, do this for 20 years and you will realize that the DJIA and DIA represent the market in general and there is little need to invest elsewhere.  .



Perry, how old are you and when did you start serious investing?  If you invested in the S&P for the last 60 years you would have more money than if you invested in the Dow.  Why do you refuse to acknowledge facts?

http://quote.fool.com/chart.aspx?s=^GSPC&c=^IXIC,^DJI&q=l&l=off&t=my


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## Steamboat Bill (Oct 9, 2007)

I decided to start a new thread on investing in Stocks vs investing in real estate, fractionals, condo-hotels, DCs, etc.

There are no absolutely correct answers here and there will be a variety of opinions, but my benchmark is how do you compare to the S&P over a 1 year, 3 year, 5 year and 10 year cycle?

In addition, I have learned to love dividend paying stocks and I also like to gamble a small bit and try to hit a home run with a stock like Apple, Google, etc.


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## bobcat (Oct 9, 2007)

Steamboat Bill said:


> I decided to start a new thread on investing in Stocks vs investing in real estate, fractionals, condo-hotels, DCs, etc.
> 
> There are no absolutely correct answers here and there will be a variety of opinions, but my benchmark is how do you compare to the S&P over a 1 year, 3 year, 5 year and 10 year cycle?
> 
> In addition, I have learned to love dividend paying stocks and I also like to gamble a small bit and try to hit a home run with a stock like Apple, Google, etc.



Just REMEMBER, Bears and Bulls make money, PIGS get KILLED in the MARKET.


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## Jya-Ning (Oct 9, 2007)

GOLFNBEACH said:


> Perry, how old are you and when did you start serious investing?  If you invested in the S&P for the last 60 years you would have more money than if you invested in the Dow.  Why do you refuse to acknowledge facts?
> 
> http://quote.fool.com/chart.aspx?s=^GSPC&c=^IXIC,^DJI&q=l&l=off&t=my



Don't know why someone want to argue which index is better.  But if you really like it, http://siepr.stanford.edu/Papers/pdf/99-16.pdf.  I think the difference is not that much, if you reinvest the dividents.  However, dividends does need to pay tax.  Since none can predict future, it is hard to tell which one is better.  



Steamboat Bill said:


> I decided to start a new thread on investing in Stocks vs investing in real estate, fractionals, condo-hotels, DCs, etc.



Not an investor but IMHO, Don't know if they are the same.  most of real estate investment is kind of like you will running a company unless you put money into REIT or some partnership, usually you actually run it.  Stock and Mutual funds and Index is kind of put trust into a company's head, you don't actually run it unless you have a lot of money or form your own company.   They may or may not require the same skill set to be really good although I tend to believe it will be very similar.  I do believe they have different risk level thus will have different return.  

Jya-Ning


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## PerryM (Oct 9, 2007)

GOLFNBEACH said:


> Perry, how old are you and when did you start serious investing?  If you invested in the S&P for the last 60 years you would have more money than if you invested in the Dow.  Why do you refuse to acknowledge facts?
> 
> http://quote.fool.com/chart.aspx?s=^GSPC&c=^IXIC,^DJI&q=l&l=off&t=my



I guess I can answer the question - I hope.

I have DJIA numbers going back to 1896 which I study all the time.

I have S&P numbers only going back to 1960.

From 1960 on:

1) DJIA averaged 11.27% total return.  Standard Dev is 15.79%
2) S&P averaged 11.62% total return.  Standard Dev is 15.64%

These are just 47 numbers each - think about that, just 47 numbers.

Going back to 1896 the DJIA has averaged 11.93% - that's 110 numbers.  Std Dev 22%

I favor using the DJIA since I have this data and this includes World War I, the Crash of 1929 which lost 79.91% of the value of the DJIA, World War II, Korea, Vietnam, the Cold War, and the War on Terrorism.  It has seen the Industrial Revolution, the train, the car, the airplane, the computer, and the Internet come and go - I just trust it more than any other investment number out there.



If you want to use the S&P go right ahead.


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## Steamboat Bill (Oct 9, 2007)

PerryM said:


> It has seen the Industrial Revolution, the train, the car, the airplane, the computer, and the Internet come and go .



Is this a slip of the keyboard or are you predicting an Internet Web 2.0 meltdown?


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## PerryM (Oct 9, 2007)

Steamboat Bill said:


> Is this a slip of the keyboard or are you predicting an Internet Web 2.0 meltdown?



No; but the Internet is old technology now.  Wireless cell phones and all kinds of wireless Blue Tooth goodies is now the latest revolution.

Whenever the medical industry looks at the human ailments the right way and comes up with cures for cancer and all the other illnesses that will be a huge revolution.  So far it has been a pharmaceutical one - that is not the answer.  The answer is to let the human body repair itself with the aid of technology - whatever shape that might be.  DNA modification, nanites, who knows.  Spare parts from the pig we tend in the back yard - our imagination is limitless.

My new cell phone allows me to:
1) Make phone calls
2) GPS navigation 
3) Full Internet browser via Internet and Wi-Fi hot spots - avg 500kb/sec max of 2 MB/sec
4) Stereo broadcast of music via blue tooth head phones
5) Play 4 full length movies on a 2 GB micro chip and watch via the large display screen and listen via blue tooth stereo head phones
6) Get an instant snapshot of my digital world with a single button - ALL my eMail accounts, my eBay auctions, my other sales outlets
7) 2 M pixel camera and movies

I can only drool at what I will be wearing on my hip 20 years from now - satellite communication at least.


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## Steamboat Bill (Oct 9, 2007)

*Apple vs Dell*

It was 10 years ago that Michael Dell, speaking before several thousand technology executives at ITxpo97 in Orlando, answered a question about what he would do if he were CEO of Apple with a remark he probably instantly regretted: “What would I do? I’d shut it down and give the money back to the shareholders.” (link)​ As others have noted, Apple’s (AAPL) market capitalization today is more than double that of Dell (DELL):
Apple:    $140.4 billion
 Dell:       $62.27 billion​ But don’t shed a tear for Micheal Dell. According to a list of the 400 wealthiest Americans published last month, his net worth is more than triple Steve Jobs’.
Michael Dell:     $15.5 billion
 Steve Jobs:    $4.9 billion​


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## Harvey and Lin (Oct 10, 2007)

Steamboat Bill said:


> How does it feel to have a technical paper loss of $430,000-$500,000?



it does not feel very good at all!!!!!


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## Mydogs2big (Oct 10, 2007)

We have stocks in our own companies, which by the way the IRS decides what they will allow us to make in wages, what they will allow us to claim as expenses and even what they will decide to consider as a loan vs investment.  NOT FUN

We cannot control when or which of the companies we do business with will regularly "restructure through bankruptcy"

Many other governmental agencies regularly tell us what we need to do and when and how much money they want in order to take care of their requests.

We cannot control employees, accidents, lawsuits, etc.

On the flip side/we own real estate.  With real estate, I feel that the world is  a little safer.  I know how much and when of everything.  And whenever My stock has big fluctuations, I leverage the real estate to carry us through.  I never have to pay it back either, the tenants take care of it.

So Real Estate vs. Stocks?  If it's the Company you're buying, you must be a huge believer and know that nothing will probably happen to them.  Real estate is physical like a goose laying eggs, but don't eat the goose!

If you are buying because other people are interested in buying, I hardly call that an investment at all.  "gambling is the word that comes to mind"

But good "luck"  You may need it in about 20 years (or less) when the U.S. is not seen as a very lucrative investment and people get scared from overseas lies and scams, and americans have to start taking mandatory withdrawals and pay for healthcare with their retirement funds.

I say the best investment is in yourself and your knowledge and people skills.
Money is easily made, and wherever you are, there you will be.


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## CarlK (Oct 10, 2007)

*How about those dogs?*



PerryM said:


> It's hard to outdo the DJIA over a long period of time. [/B]



But, if you like the DJIA, one strategy that seems to beat the index is investing in the "Dogs of the Dow."  Less diversification than the index, but last time I looked, a better return.
Carl


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## PerryM (Oct 10, 2007)

Mydogs2big said:


> We have stocks in our own companies, which by the way the IRS decides what they will allow us to make in wages, what they will allow us to claim as expenses and even what they will decide to consider as a loan vs investment.  NOT FUN
> 
> We cannot control when or which of the companies we do business with will regularly "restructure through bankruptcy"
> 
> ...




Luckily the choice of real estate or stocks is one we don’t need to make – we own both.  About half our net worth is real estate and half is in stocks.  I don’t like or believe in bonds – they are subject to terms that change daily by the folks issuing the bonds.

When our son was born in 1986 his grandfather bought zero coupon high grade municipal bonds that would cover his college education 20 years later.  At the time he got fantastic bonds/rates – all were called within 10 – 12 years and we put the money in the stock market for him.  Bonds are just too one-sided for me.

Folks ask me about risk all the time.  They want a “Risk Free” investment.  I advise them to put their money in US government bonds the big ones.  Beyond that every investment has risk and generally the more risk the higher the reward.  You can’t make that determination without at least 2 to 3 times the history versus the time you want to hold the investment.

For someone who is looking at 40 years of investing that’s a track record of 80 to 120 years.  There is but one investment vehicle – the DJIA that meets that criterion.

P.S.
Putting your money in US bonds is "Risk Free" but will see your standard of living plummet over the years.  You need to make a profit that accounts for at least 3% inflation, Uncle Sam's hands in your pocket, and throw in inflation in certain areas, like health care, that move at 2 or 3 times inflation.  Again I come back to the DJIA - the stock market.


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## PerryM (Oct 10, 2007)

CarlK said:


> But, if you like the DJIA, one strategy that seems to beat the index is investing in the "Dogs of the Dow."  Less diversification than the index, but last time I looked, a better return.
> Carl



I've studied the "Dogs" for many years - it was a curved fitted stock scheme that has fallen apart in the past 10 years - avoid the "Dogs" is my advice.

In the past 20+ years I've investigated at least 1,000 stock schemes - from plotting the moon to which months are best to enter and leave the market to the 4 year presidential cycle.

Believe me when I say that just buying the DIA is the ONLY system I've found that will make you consistent money over a 20 year time frame - no switching in and out, no timing, just buy and hold.


I have some unbelievable stories about stock trading systems - I have flown around the country and attended hundreds of seminars - all phony.

And when you think about it - why would someone who has the Holy Grail of stock trading systems share it with a living soul?  They would not - they would form a hedge fund and make even more money and not tell a soul how they do it.


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## GOLFNBEACH (Oct 10, 2007)

PerryM said:


> I guess I can answer the question - I hope.
> 
> From 1960 on:
> 
> ...



Well is looks like the S&P is the better investment for this timeframe.  And it looks like there are viable alternatives to DIA.  That was my point.

I'm leaving for 2 days of golf and then a weekend in NYC so I will be unable to follow-up until next week.

Happy investing.


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## Steamboat Bill (Oct 10, 2007)

PerryM said:


> In the past 20+ years I've investigated at least 1,000 stock schemes - from plotting the moon to which months are best to enter and leave the market to the 4 year presidential cycle.
> 
> Believe me when I say that just buying the DIA is the ONLY system I've found that will make you consistent money over a 20 year time frame - no switching in and out, no timing, just buy and hold.



wow...I have never heard about investing in the phases of the moon...but I guess it could make sense to readers of Freakonomics.

I also think it is HARD for anyone to beat the DOW or S&P500 over a 10 year or longer period. 

Most people LOSE money chasing the hot stocks they hear about on CNN.

I am pretty good friends with a "Talking Head in CNNfn" and his fund can't beat the S&P over a 10 year period and this guy is considered an "expert" and manages almost $1b of OPM (other people's money). What are the little guys (teachers, plumbers, secretary) supposed to do...investing in DIA or SPY is probably better than anything else?


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## PerryM (Oct 10, 2007)

Steamboat Bill said:


> wow...I have never heard about investing in the phases of the moon...but I guess it could make sense to readers of Freakonomics.
> 
> I also think it is HARD for anyone to beat the DOW or S&P500 over a 10 year or longer period.
> 
> ...




I have a closet full of gadgets that "Forecast" the future of stocks - paid big bucks for them.  I have every device Gann sold, I have every one of his hidden manuscripts that folks fly all over the earth to track down - all phony.

I feel like that magician guy who debunks mystics - all phony.

Trust me when I say that buying the DIA or SPY or whatever index stock you want is the ONLY safe investment over the long haul.  Even Warren Buffett makes slightly more than the DJIA over a long period of time - this is nothing to sneeze at by how long will Warren be around to do this - 40 more years?

Be your own investment master - don't hire someone to tell you to diversify you already know that.  Buying the DJIA and real estate and holding them long periods of time is wealth creation.  Everything else is smoke and mirrors.

But, that's just my opinion and put as much stock in it as you paid for it.


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## Tedpilot (Oct 10, 2007)

The dogs of the DOW...that reminds me of the system that the Motley Fool invester use to recommend.  Of course, their data was based on the history of the market and which ones would always out perform the index.  Needless to say, when they became popular all of the sudden their model that they spent years perfecting was no longer any good...  Back to the drawing board.  I'm not sure what snake oil they are selling today.  

My non-real estate investments are primarily in American Funds products.  They have been good to me and my broker has been on top of them so I don't worry.  He has been able to stay slightly ahead of most market trends and move the mainstay of my money in/out of the right sectors.  So far it has all been sage advice.  A long time ago I asked him about day trading and if I could do better than he.  He laughed...I was serious.  I thought I could do well and this was in late 99'.  He said to take $2k, play with it, and if I could beat my own portfolio's return he would give me my entire portfolio back and pay the fees himself.  Needless to say I couldn't and by late 00' I was depositing what I had left back into the account.

If there is anything that I have learned in my adult life about money it would be that it takes time to grow and compound interest is my friend.  I have found that I need to be patient, persistent, disciplined and make sure I understand that some returns aren't all about the interest or dividends, but about my family and friends.  A carefully planned vacation, night out with the wife, or drinks with the boys are all sound intangible investments in life.  As the saying goes, they are priceless.


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## vivalour (Oct 10, 2007)

Tedpilot said:


> I have found that I need to be patient, persistent, disciplined and make sure I understand that some returns aren't all about the interest or dividends, but about my family and friends.  A carefully planned vacation, night out with the wife, or drinks with the boys are all sound intangible investments in life.  As the saying goes, they are priceless.



So true, and I would add kids to that mix. As a long-time investor and market observer (since high school under the tutelage of my dad), I have learnt not to take anything for granted in the markets, including trends.  I think the rise of China as an industrial superpower and vast consumer of resources is going to be the "next big thing" to contort international markets in the next 25 years or so. Watch as they establish their own state-owned companies to buy up oil and a 100 or so other resources from other emerging states. Have you tried to buy toys, office supplies or kitchen utensils NOT made in China, lately?


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## BocaBum99 (Oct 10, 2007)

PerryM said:


> I have a closet full of gadgets that "Forecast" the future of stocks - paid big bucks for them.  I have every device Gann sold, I have every one of his hidden manuscripts that folks fly all over the earth to track down - all phony.
> 
> I feel like that magician guy who debunks mystics - all phony.
> 
> ...



Perry,

Whatever floats you boat is fine for you.  But, that doesn't mean that your strategy is right for everyone.

To debunk your assertion of absolutes, let me provide the following.  First, An investment in a diversified porfolio of Treasury Bills and Bonds is far more safe and secure than investing in DIA.  So, that debunks your absolute assertion that DIA is the ONLY safe investment over the long term.   Second, if a family needs income from their investments, DIA isn't necessarily the best investment for them, especially if they may need to liquidate their portfolio in any given year for special needs like buying a home.

Moreover, I used to invest heavily in the Stock market.  I made a lot of money doing it.  Over a 2 year period after the stock market bubble burst that I actively invested in individual stocks, I averaged over 30% gain per year on a rather sizable portfolio and I beat the S&P 500.  I got lucky mostly because I picked a good time to pick up stock investing and caught a very nice and extended bull run.  This was a case where luck played a bigger role in my success than skill.  I gave all that up since I didn't think my good fortune was sustainable and I found that actively investing my money in businesses yielded a far greater return, gave me much more control of my own destiny and reduced the need for luck.  This is one of the Rich Dad concepts that I agree with.

Another concept that Robert Kiyosaki advocates that I agree with is this.  Stocks, bonds and other such passive investments are best to use AFTER you have enough networth and assets to quit working.  You are much better off taking all of your assets and putting them to work in business and real estate assuming you have the skill and drive to make it happen.  Once you get out of the rat race, then these investment types make more sense.

In playing the cash flow game, a very interesting thing happened.  At first, people would be presented with stock investment opportunities that sounded pretty good.  Sometimes, they would make 50% gains in a very short period of time.  But, that strategy ended after they say person after person foregoing those opportunities in favor of Real Estate investments that yield huge returns that enabled them to generate enough passive income to get "out of the rat race."  Now obviously, investing actively in business and real estate takes a lot of skill or you can easily lose everything.  I don't want to minimize the fact that that is the case.  I just want to point out that if you are a middle or even upper middle income person, investing in Stocks or DIA is not likely to get earn you enough passive income to stop working.


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## PerryM (Oct 10, 2007)

*The turtle always wins....*



BocaBum99 said:


> Perry,
> 
> Whatever floats you boat is fine for you.  But, that doesn't mean that your strategy is right for everyone.
> 
> ...




Well, to invest in the stock market just requires an IRA or better a Roth IRA if a person qualifies.  

Assume a person deposits just $5,000 per year in a Roth IRA for 40 years - and that the DJIA averages 12% per year over that time frame (Same as the average since 1960) then when a person retires he/she will have:

*$4,245,863 to retire on.*  In today's dollars that's $1,828,492 on an investment of $117,381 (net present value of $5,000 deposited for 40 years)  (3% inflation)

*That's a return of 1,500% on that money.*  Not one decision had to be made, not one more second was needed to provide for a fantastic retirement.  Thanks DJIA.

Once a person has done this they can go and play real estate tycoon or stock tycoon or any kind of tycoon they want.

You must be employed to get a Roth IRA however.

Me, I'm that turtle that plods along year after year with the retirement goal not that many years away.

P.S.
To recap: stuff $5,000 per year into a Roth IRA and the DJIA (DIA) and that's all the stock investing you need to ever do - the rest of your money you can blow anyway you want.

Come on now folks, $5,000 a year is just the same as a cheap timeshare and this will greatly improve your life.


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## ricoba (Oct 10, 2007)

Here's a great little article from Motley Fool I came across the other day about one of my favorites of the DOW, MO (Altria/Philip Morris). ( I own it and bought more on Monday)  I know it's not for everyone, some oppose smoking (I don't smoke btw) and others don't like the potential for law suits.  The article points out some great stats/info on MO.

Scary Company, Great Investment.

What's the single best investment you could have made in the past 50 years? Surely, it must be a highflier like Microsoft  (Nasdaq: MSFT) or Cisco Systems  (Nasdaq: CSCO), right? Nope. How about a market leader like Wal-Mart  (NYSE: WMT) or Standard Oil? Keep trying. Could it be Berkshire Hathaway  (NYSE: BRK-A), run by the greatest investor of all time? Surprisingly, no.

The answer is Altria Group (NYSE: MO), formerly Philip Morris, one the world's largest cigarette manufacturers. A $1,000 investment in Philip Morris in 1957 would today be worth more than $12 million, compared with $160,000 had you invested in the S&P 500 average. No wonder Albert Einstein called compound interest "The eighth wonder of the world."

[_Edited to delete the majority of the article, which is copyrighted. Those wishing to read the entire article may do so at this link. _ Dave M, BBS Moderator]


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## BocaBum99 (Oct 10, 2007)

ricoba said:


> Here's a great little article from Motley Fool I came across the other day about one of my favorites of the DOW, MO (Altria/Philip Morris). ( I own it and bought more on Monday)  I know it's not for everyone, some oppose smoking (I don't smoke btw) and others don't like the potential for law suits.  The article points out some great stats/info on MO.
> 
> Scary Company, Great Investment.
> 
> ...



That was one of the stocks I made a ton of money on.   I also made great money on AIG.  My strategy on those were playing the very high dividend and when they got hammered, picking up extra shares knowing it would come back.  

Another one was CME, the Chicago Mercantile Exchange.  This stock's performance is very similar to Google.  I did make good money on Google.  But, after losing millions of paper dollars in the tech bubble, I always take profits early now.  MKL, Markel.  BIIB, Biogen IDEC were great stocks I picked at the right time.  CC, Circuit City.  Also, I bought NT and LU when they were penny stocks.  I knew that at least one of them would survive bankrupcy.  My goal was to get 100,000 shares of each, but I got cold feet, so I stopped at about 30,000.

I had some spectacular failures, too.  Like T, AT&T.  CD, Cendant and others.  But, it was very fun picking stocks and switching sectors.

Also, I made money shorting stocks as well.  I played JNPR and INTL that way and then switched back to a long position.

When the interest rates were down below 1%, I invested in Juno inverse bond funds.  That was fund betting against the trend in interest rates.  

So, stock investing can be really fun and profitable.

This discussion makes me want to do it again.  But, it takes a lot of time analyzing stocks and trends.  Not enough time in the day.


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## BocaBum99 (Oct 10, 2007)

PerryM said:


> Well, to invest in the stock market just requires an IRA or better a Roth IRA if a person qualifies.
> 
> Assume a person deposits just $5,000 per year in a Roth IRA for 40 years - and that the DJIA averages 12% per year over that time frame (Same as the average since 1960) then when a person retires he/she will have:
> 
> ...



Perry,

This is not a bad middle income strategy for people planning a relatively safe long term financial plan.  However, you did not introduce one of the key risks of this strategy.  That is that the lion's share of the returns are from the investments made early on.  The stock market does not go up in a straight line. It has years of very high growth and it has at times decades of flat growth.  

Here the numbers my spreadsheet gives me:

$5000 per year invested at 12% (by the way, there is no such investment that yields that fixed rate of return every year except for when inflation is very very high).  After 40 years, you will have $4.3M.  At 3% inflation, the net present value of that $4.3M is $1.3M in today's dollars.  This also assumes 100% tax deferred capital gains and dividends.

Now, let's say you take that $1.3M and trade it for a 20 year annuity at 6.5% interest.  Your monthly payment pre-tax in today's dollars would be:  $118,000 per year fixed for 20 years.  You must pay taxes on that and your real income would be decreasing at 3% per year due to inflation.  So, you last year payment in today's dollars would be $65,000.

Assuming you start working at 21.  This is a decent plan for a middle income person who lives to 81.

BUT, you are NOT guaranteed to get 12% return every year.  That is only an average.  Some years you will get 0%.  Some years you will lose capital.  Other years you will boom at 20% or more.  If you are unlucky enough to hit a 20 year flat spell in the market such as from Jan 2, 1962 (724.71 close) to Jan 4, 1982 (882.52) when the Dow had a 20 year period averaging 1% compound annual growth, you could end up a dramatically lower nest egg for retirement.

Let's take a look.  If you have a 1% annual return for the first 20 years you invest and then you have 23% returns for the second 20 years, you would still be averaging 12% gains, but here are the new numbers:

You would have $1.8M at the end of your 40 years.  In today's dollars that would be $550k.  Taking the same 20 year annuity from before at 6.5%, you would be receiving:  $49k/year in year one.  At the end, due to inflation, you would be receiving $27k.  You are officially in poverty.

So, don't let Perry make you believe that just because a stock market averages 12 or 13% over 80 years or more that you are assured a comfortable retirement.  

I do wish more people would be doing this.  I would prefer this type of retirement planning for the masses over social security.  But, that is a different discussion.

A better approach, in my view, is teach children BUSINESS in elementary school.  Instead of Reading, Writing and Arithmetic only.  Add a fourth track called Business.  Reading, Writing, Arithmetic and Business.  Teach kids how to run a business on their own when they turn 18.  It's really easy now that the internet and eBay is here.  The world is your market.

Now, when they are young and take the greatest risks and still recover, let them swing for the fences so that they can amass $1.8M of accumulated net worth by the time they are 30 years old.  Wouldn't it be much more fun to have $1.3M at 30 rather than 60?

I wish I had that mentality coming out of high school.  I think this is one of the key messages the Rich Dad / Poor Dad tries to convey.  Roberty Kiyosaki may not be everything he's made out to be.  But, this one point has merit.


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## vineyarder (Oct 10, 2007)

> A better approach, in my view, is teach children BUSINESS in elementary school. Instead of Reading, Writing and Arithmetic only. Add a fourth track called Business. Reading, Writing, Arithmetic and Business. Teach kids how to run a business on their own when they turn 18. It's really easy now that the internet and eBay is here. The world is your market.



That is what our schools do; start business education in 3rd grade; by the time they enter middle school (6th grade), they have written business plans, obtained start-up financing from a commercial bank, and run 2 businesses; one for-profit and one non-profit/charitable.  Then business ed continues in middle school, with numerous annual student-run businesses.  In 6th grade, my older daughter tallied up her hours worked vs. her profits and realized that she earned over $60 per hour... babysitting (i.e. working for someone else) isn't quite so appealing anymore.


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## Jya-Ning (Oct 10, 2007)

vineyarder said:


> That is what our schools do;


Any chance that is a school in MD?

Jya-Ning


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## vineyarder (Oct 10, 2007)

Jya-Ning said:


> Any chance that is a school in MD?
> 
> Jya-Ning



No, in FL...


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## Bourne (Oct 10, 2007)

The turtle always crosses the line...That does not mean it always win. 

Working on software that supports the Trade Desk of Portfolio managers handling 2Mil - XX Billion, I am privy to a lot of models that the likes of Smith Barney, Merrill Lynch, UBS and Northern Trust use. 

You will be amazed how much effort is put behind the scenes to beat the market by a few percent.


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## Jya-Ning (Oct 10, 2007)

PerryM said:


> Me, I'm that turtle that plods along year after year with the retirement goal not that many years away.


You forget the sentence "Past performance does not guarantee the future return" or something like that.

I wonder after few year's crawl, if the turtle still can walk on the stright line, or believe it is walk on the goal line.  Most of the people I know don't like depend on a plan that does not have back up.  And most people I know believe they are smart enough to just make better return or can walk faster.  Even if someone that can walk x years, I wonder if they have a second thought when there are couple down years and make their goal look much more father.

Since DJIA and SP500 both are supposed to tracking big US companies, I doubt in the long run if there will be any big difference in return.   They just reflect the fact that over the last 60 years, US has a very good economic run and very stable politically.  If you just look at Japan's index, you will see if the whole situation runs a little different, what will be the impact on your plan.

With you talking about using margin to improve the return, I don't quite sure you believe this is the only index one will need.



BocaBum99 said:


> Let's take a look.  If you have a 1% annual return for the first 20 years you invest and then you have 23% returns for the second 20 years, you would still be averaging 12% gains, but here are the new numbers:



Although I agree your analysis, I think you write too quick, the worse return (since Perry assume money is put every year into a Roth for 40 years start from like now) situation is not the first few years the return rate is low then the last few years the return rate is high, it should be reverse, the last few years the return rate is low or negtive, and the first few year is high (since you have very little capital put in at those year, you missed most of the gain).  So, if someone start investing in 2000 on US stock and assume the avg. can hold, then (s)he will gain the most.

One thing for sure, I certain don't like to wait for 40 years then realize my plan work or not work.  I would think I should be able to do something to improve the chance, but I probably will never find out the truth until the day I die I guess.

Jya-Ning


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## Courts (Oct 10, 2007)

Steamboat Bill said:


> It was 10 years ago that Michael Dell, speaking before several thousand technology executives at ITxpo97 in Orlando, answered a question about what he would do if he were CEO of Apple with a remark he probably instantly regretted: “What would I do? I’d shut it down and give the money back to the shareholders.” (link)​ As others have noted, Apple’s (AAPL) market capitalization today is more than double that of Dell (DELL):
> Apple:    $140.4 billion
> Dell:       $62.27 billion​ But don’t shed a tear for Micheal Dell. According to a list of the 400 wealthiest Americans published last month, his net worth is more than triple Steve Jobs’.
> Michael Dell:     $15.5 billion
> Steve Jobs:    $4.9 billion​


A bit of trivia here, Steve Jobs is not as good an investor as he is running Apple. Turns out he sold quite a bit of Apple stock a few years ago. Maybe he took Michael dell's advice ?


.


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## Courts (Oct 10, 2007)

PerryM said:


> No; but the Internet is old technology now.  Wireless cell phones and all kinds of wireless Blue Tooth goodies is now the latest revolution.
> 
> Whenever the medical industry looks at the human ailments the right way and comes up with cures for cancer and all the other illnesses that will be a huge revolution.  So far it has been a pharmaceutical one - that is not the answer.  The answer is to let the human body repair itself with the aid of technology - whatever shape that might be.  DNA modification, nanites, who knows.  Spare parts from the pig we tend in the back yard - our imagination is limitless.
> 
> ...



That is why I bought 1000 shares of a satellite telephone company a few years ago. Trouble is, they went bankrupt but the parent company is still in the same business. Guess I did not research as well as I thought.

.


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## Steamboat Bill (Oct 11, 2007)

I have met and become friends with many multi-millionaires and even a few billionaires.

Most of them made their fortune the old fashioned way...hard work, good timing, good instincts and most of them created their own business. Some of them have made a lot of money in real estate and tiny amount of them made a lot of money in the stock market.

Anyone that made a lot of money in the stock market is usually a hedge fund manager and they live a nice lifestyle. 

But it surprises me to see an average person (and even a few non-college graduates) do extremely well in real estate....especially commercial real estate and things like self storage warehouses, strip malls, office buildings, etc. The concept of "passive income" is well known to some of these people.

You can make a fortune in the stock market, but it is easier to do it with real estate investing and/or starting a successful business.

Some issues with real estate are: taxes, maintenance, insurance, lawsuits (slip and fall), code issues, renters, damaged property, etc.

It took a lot of guts to buy commercial real estate in Downtown Delray Beach, Florida on Atlantic Avenue 10 years ago when they could not get $5 per square foot rent and now after it has been redeveloped, the price is $50-60 per square foot and people are breaking down the door to pay those prices.

Real Estate investing is usually a get rich slow plan.


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## PerryM (Oct 11, 2007)

*The Holy Grail revealed.....*

Most sources, on the amount of money one can withdraw from the stock market and use for retirement, say 4% is the maximum - that would allow for a worst case scenario, inflation, and taxes without wiping out.  That’s 4% of the amount invested at the end of each year.

In my Roth IRA example of $5,000 per person deposited for 40 years with 3% inflation allowing for a DJIA growth of 12% gives us $1,828,492 in present dollars.  4% of that is $73,140 per person year one and steadly increasing amounts that take inflation into account.  For a couple both depositing $5,000 each that would be a household income of $146,280 per year.  I’d say that’s upper middle class income territory.

This remaining amount is then disbursed to the heirs when we die.

Once retirement has been taken care of in a conservative manor all kinds of get-rich schemes can be played – I can’t forecast their outcome.

I’d be interested if the Rich Dad, Poor Dad has a CPA verified history of his income using the very schemes he sells.  I’m guessing he does not since the vast amount of his yearly income is probably from selling these get-rich schemes.

I asked that same question to the hundreds of guys selling get-rich stock market schemes.  They always had a clever reason why this could not be done.  So many secrets to protect.

Anyways, I’ve presented here what I believe is the Holy Grail of stock market investment systems/retirement systems – 99.99% of you will scoff and ignore this advice – that’s why it’s the Holy Grail.

You should print this thread and put it away in your safety deposit box and take it out in 20 years to see how I did in those years - you probably will have done something else and I'll let you be the judge of who had the better retirement approach.

P.S.
For those of you who think that 13% per year is not enough, just how much should you expect?  100% per year?  If not 13% then what?  The simple answer is that you don’t have the historical numbers to make ANY forecast – you might as well take the last two digits of the serial number of any piece of money in your wallet/pocket – that’s as good a guess as you can make.


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## Lawlar (Oct 11, 2007)

*My 2 cents on this interesting topic*

This is a really interesting topic.  I would like to add the following comments:
	1.  Popular perceptions, usually based on recent experiences, often turn out to be wrong.  When I was in college, in the 1970s, I took a course on RE investing.  I remember that the professor told us to never invest in residential real estate because that was “slow suicide.”  Around the same time, my grandmother told me that the worse investment she had made was the purchase of her home, it hadn’t gone up in value for 20 years (in fact, real estate from 1950s to 1970s did not go up in value, or only modestly).  I inherited my grandmother’s home, worth 30,000 in 1970, and two years ago it was worth one million – go figure (but now it is worth about 200,000 less because the RE bubble has burst).  Unfortunately, I sold that home in 1980 (for 200,000) after reading in Barron’s that the RE market was going to crash.   Needless to say, by 2005 the popular belief was that residential real estate would keep going up forever - Nope.
	2.  Long-term investments in high quality property is your best bet.  For me, I have been very happy with no-load value mutual funds that I have invested in for about 30 years.  The only mistake I made in this area was to occasional sell a portion of my investments because of fears caused by short term market panics.  I’ve learned that my fund managers will buy high quality companies, diversify, and maintain some cash for buying opportunities (they did not invest in Internet stocks, and their funds did not suffer serious losses during the 2000-2002 bear market).  Yes, I did buy another home and we paid off the mortgage, so that no matter what happens in the RE market (and I think the next couple of years will be really ugly in California), we have a nice home to live in.
	3.  Diversity is Essential:  Unfortunately, most people are looking for the quick profit.  They follow the crowd.  When I was practicing law, I did lots of bankruptcies for people who were flipping homes (in the early 1990s), trading stocks and commodities, and other get rich schemes.  Sad.  Unfortunately, I also found that a big cause of bankruptcies was a failure to diversity.  This was especially true for family businesses.  A large percentage of businesses fail when new technologies and new competition change the marketplace.  For those family businesses, where the families had invested everything they had in their businesses, they lost everything (including their homes that they mortgaged to support the business).


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## Steamboat Bill (Oct 11, 2007)

Lawlar said:


> Diversity is Essential:  Unfortunately, most people are looking for the quick profit.  They follow the crowd.  When I was practicing law, I did lots of bankruptcies for people who were flipping homes (in the early 1990s), trading stocks and commodities, and other get rich schemes.  Sad.



Greed is NOT good in situations like this....sorry Gordon Geckko

http://www.americanrhetoric.com/MovieSpeeches/moviespeechwallstreet.html


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## CaliDave (Oct 11, 2007)

Perry,

You know there are income limits on a Roth IRA. I think its about $150K for a couple. I'm sure a good portion of your Tug audience is over that limit or they are older and I wouldn't recommend 100% stock for someone in their late 50's or 60's.


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## BocaBum99 (Oct 11, 2007)

Steamboat Bill said:


> I have met and become friends with many multi-millionaires and even a few billionaires.
> 
> Most of them made their fortune the old fashioned way...hard work, good timing, good instincts and most of them created their own business. Some of them have made a lot of money in real estate and tiny amount of them made a lot of money in the stock market.
> 
> ...



Of all your posts on this site, this is the one that I am most in agreement with you on.  I think you do a very good job of contrasting the various approaches and characterizing the risks, effort and luck involved.

The problem with most get rich quick schemes is that that scheme owner is trying to make money from the masses of people with the hopes of riches, but without the skill, capital, desire or werewithal to pull it off.  So, they oversimply the ideas to get them to sign up for the course.  There is always a kernal of truth in what they say.  It's the stuff they don't say that is important.

A while ago, I bought Trump and Kiyosaki's book "why we want you to be rich."  I hated it.  It was really a trivial discourse on some really important topics.  But, they had some kernals of truth that really rang true.  One of those truths is that all the rewards are captured by the top 5% in anything.  If you want to excel at something, plan to be in the top 5% or you will end up working hard for the left overs.  That is also missing from some of theses equations.  They imply that if you only buy our product, our system will get you into the top 5%.  I don't think it works that way.  You either have the potential of being in the top 5% or you don't.  If you do, then you would have gotten there anyway without the course as long as you got exposed to the content and apply yourself to the initiative.  In other words, a good round of networking with the right people will get you there more effectively than paying for a $24k course.

On your point about risk taking, that is an extremely good topic as well.  When I was analyzing NT and LU, I was absolutely sure that my strategy of investing in both equally would yield me a fantastic return since the government and/or telecom companies wouldn't allow both to go into bankrupcy without some help and they had residual businesses in maintenance and support services that could keep them afloat.  They could have fired all employees not related to the maintenance business and stayed afloat even without any new customers.  I picked the number, 100,000 shares of both at around $.30-.50/share.  That would have been less than a $100k bet.  I only picked up 30,000 shares because I chickened out.  Too many people were predicting bankrupcy for both.  I didn't trust my own analysis when push came to shove.  I ended up selling between $2-7/share.  Again, I sold all the way up to ensure that this time I had some profits.  So, I made a great return which was assured due to my not being a slaughtered pig.  But, I missed a $1M upside opportunity for underinvesting and bailing out early.


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## PerryM (Oct 11, 2007)

CaliDave said:


> Perry,
> 
> You know there are income limits on a Roth IRA. I think its about $150K for a couple. I'm sure a good portion of your Tug audience is over that limit or they are older and I wouldn't recommend 100% stock for someone in their late 50's or 60's.



True, but you must pay the taxes on the Roth before you submit the money.  You can do the same thing with a margin account and since you never sell DIA you pay the taxes on the dividends which are reinvested periodically to buy more DIA.

There is little difference.


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## BocaBum99 (Oct 11, 2007)

vineyarder said:


> That is what our schools do; start business education in 3rd grade; by the time they enter middle school (6th grade), they have written business plans, obtained start-up financing from a commercial bank, and run 2 businesses; one for-profit and one non-profit/charitable.  Then business ed continues in middle school, with numerous annual student-run businesses.  In 6th grade, my older daughter tallied up her hours worked vs. her profits and realized that she earned over $60 per hour... babysitting (i.e. working for someone else) isn't quite so appealing anymore.



Your kids school is way ahead of its time.  I am helping my son's create a business of their own so that they can have something to fall back on if the post college job market looks bleak.


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## Steamboat Bill (Oct 11, 2007)

I just got this via e-mail from a friend

---------------------

 Michael Jordan having "retired," with $40 million in endorsements, makes $178,100 a day, working or not. 


 If he sleeps 7 hours a night, he makes $52,000 every night while visions of sugarplums dance in his head. 

If he goes to see a movie, it'll cost him $7.00, but he'll make $18,550 while he's there. 


 If he decides to have a 5-minute egg, he'll make $618 while boiling it. 


 He makes $7,415/hour more than minimum wage. 


 If he wanted to save up for a new Acura NSX ($90,000) it would take him a whole 12 hours. 


 If someone were to hand him his salary and endorsement money, they would have to do it at the rate of $2.00 every second. 

He'll probably pay around $200 for a nice round of golf, but will be reimbursed $33,390 for that round. 

He'll make about $19.60 while watching the 100-meter dash in the Olympics, and about $15,600 during the Boston Marathon.

 This year, he'll make more than twice as much as all U.S Past presidents for all of their terms combined. 

Amazing isn't it? 


 However...If Jordan saves 100% of his income for the next 500 years, he'll still have less than Bill Gates has at this very moment. 


 Game over. Nerd wins


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## caribbeansun (Oct 12, 2007)

All you are really talking about here is risk vs. return trade offs with respect to having your own business.

If you are successful the return can be considerable however that is in direct correlation to the risk you've put your capital at.  Return on a private business should be in the 20-40% range but then you have to consider the odds of going out of business.

The oft quoted success rates are 5% survive 5 years and of those survivors 5% of them last another 5 years.

Not unlike your comments to Perry about the differences between equity investments and t-bills.

Lets not forget that the premise of the invest in stocks after you retire model assumes that you are able to create a valuable business, run it like a business and cash out by finding a buyer willing to pay you the multiple of earnings you desire.  The vast majority of small business owners create a "job" for themselves and never realize on the potential of a business.  They are so unwilling to run it like a business that they create personal goodwill rather than commercial goodwill and by definition personal goodwill is not transferable and thus has no or limited value to a buyer.



BocaBum99 said:


> I found that actively investing my money in businesses yielded a far greater return, gave me much more control of my own destiny and reduced the need for luck.  This is one of the Rich Dad concepts that I agree with.
> 
> Another concept that Robert Kiyosaki advocates that I agree with is this.  Stocks, bonds and other such passive investments are best to use AFTER you have enough networth and assets to quit working.  You are much better off taking all of your assets and putting them to work in business and real estate assuming you have the skill and drive to make it happen.  Once you get out of the rat race, then these investment types make more sense.


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## Elan (Oct 13, 2007)

One should invest in whatever area interests them enough to become knowledgeable in that area.  A high interest level and the associated perseverance is probably more critical to success than all other factors combined.  
                                 JMHO,
                                          Jim


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## PerryM (Oct 15, 2007)

*Ben Stein is just fine....*

I love Ben Stein - he is a genius.

Here are his latest words about investing.

Ben wants to sleep good at night - follow his advice.

The turtle always wins....


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## Steamboat Bill (Oct 15, 2007)

PerryM said:


> I love Ben Stein - he is a genius.
> 
> Here are his latest words about investing.
> 
> ...




I like it when he says KEEP IT SIMPLE, STUPID....where did I hear that...oh yeah...I posted that....see post #25.

Ben Sein has been promoting Dividend paying stocks for years. He also writes an online column on yahoo finance

http://finance.yahoo.com/expert/archive/yourlife/ben-stein/1


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## BocaBum99 (Oct 15, 2007)

caribbeansun said:


> All you are really talking about here is risk vs. return trade offs with respect to having your own business.
> 
> If you are successful the return can be considerable however that is in direct correlation to the risk you've put your capital at.  Return on a private business should be in the 20-40% range but then you have to consider the odds of going out of business.
> 
> ...



I agree with your characterization of risk.  I also agree with your assertion that many small business owners do not know how or do not have the desire to create a sellable asset.  That's actually the fun part.  You need to prove that you can create a system that operates without you.  It's the same principle of generating passive income.  If you have a business that throws off cash, has a strong balance sheet and generates growing income, you have a sellable asset.  Or, you have passive income.

When investing in stocks vs. your own company, what you are really doing is making a bet on yourself or another set of managers.  I just happen to rather bet on myself.  If I totally screw up a business and it fails (which I have by the way), at least I did it.  If I place a bet on another manager like Ken Lay and he screws up, it hurts a heckuva lot more.


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## caribbeansun (Oct 16, 2007)

Fair point however I would add the modifier that you first have to find a devalued business (unless you are talking about a start up).  In which case you likely turf much of the management team that put it in the place it now sits.

This process is what I refer to as Business Renovation - not unlike the "flip this house" thing but with a longer time line of say 3-5 years.  You need the underpriced "dog with potential" to start, renovate it by improving the management team and redesign processes from front end to back end and then find a buyer once you're done.  Basically you're working both components of the value calculation - you're driving down risk in the business which increases the multiplier and you're driving up the profitability which of course increases what you're applying the multiple to with the end result of a much greater value.  I completely agree that the payoff can be substantial and again the risk is also substantial.

Good on ya if this is your game!

If you're talking start up then it's two different realms with very different risks.




BocaBum99 said:


> When investing in stocks vs. your own company, what you are really doing is making a bet on yourself or another set of managers.  I just happen to rather bet on myself.  If I totally screw up a business and it fails (which I have by the way), at least I did it.  If I place a bet on another manager like Ken Lay and he screws up, it hurts a heckuva lot more.


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## BocaBum99 (Dec 17, 2008)

PerryM said:


> This seminar has a positive outlook and outcome - therefore a fee must be charged. The drive-by media is "free" it forces a steady diet of doom and gloom on us through thousands of newspapers, TV, cable, books - *humans seem to need to feel guilty about something to feel good about themselves * (I said that) - go figure.
> 
> Anyway, I suspect that 95% of the folks paying money fail at this scheme and the 5% that do succeed go on to sell books/courses to the 95% that fail.
> 
> ...



Perry,

You made the call on Oct 7, 2007 to buy and hold DIA.  On Oct 8, 2007, it was at 140.52.

At this time on Dec 17, 2008, it is at 89.57.  Congratulations, your call resulted in a loss of 36.26% for anyone who listened to you on that day.

Your net worth is down 18.13% just based on that call.


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## CaliDave (Dec 17, 2008)

Boca -- you are assuming he didn't margin his DIA's,which could have resulted in a much bigger loss.


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## Vacation Dude (Dec 17, 2008)

I actually think DIA is now a good buy, but who the heck really knows anything for sure.

I also feel Maui is a terrible buy now or last year as I am sure prices are really depressed now and for the next few years.


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## BocaBum99 (Dec 17, 2008)

Vacation Dude said:


> I actually think DIA is now a good buy, but who the heck really knows anything for sure.
> 
> I also feel Maui is a terrible buy now or last year as I am sure prices are really depressed now and for the next few years.



I agree that DIA is a buy NOW.  But, it wasn't a buy on Oct 8, 2007.

I am not sure if the Lahaina Tower 3br oceanfront units are a terrible buy if you can pick one up for less than $10k.  Not sure if you can.  But, if it presented itself, I'd have a hard time saying "no."  Yes, $2000+ for maintenance fees are steep.  But, such a unit would probably rent even in this depressed market for more than the MF.   And, once travel rebounds in Hawaii, which is will at some point in the future, it will be a LOT more.

Actually, I'd have a hard time seeing Marriott waive ROFR on such a deal, even today.


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## BocaBum99 (Dec 17, 2008)

Vacation Dude said:


> I actually think DIA is now a good buy, but who the heck really knows anything for sure.
> 
> I also feel Maui is a terrible buy now or last year as I am sure prices are really depressed now and for the next few years.



Ooops, this Maui reference is related to general real estate.  I'm not familar with Maui real estate market, but it's probably depressed like everything else is, especially a condo hotel which is valued based on expectations for its net rental income.


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## Vacation Dude (Dec 17, 2008)

BocaBum99 said:


> Ooops, this Maui reference is related to general real estate.  I'm not familar with Maui real estate market, but it's probably depressed like everything else is, especially a condo hotel which is valued based on expectations for its net rental income.



I hear condo-hotels are next to impossible to sell, thus the prices are crashing. Or is that the sound of the waves hitting the sand in Maui and Florida?


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## Mydogs2big (Dec 29, 2008)

I tend to believe anything that will always have a market and is not easily replaced, ie; land, raw materials, water, electricity, food, is always a buy just when no one else wants anything to do with it.

Of course, it can be difficult for even the smart investor to pull the trigger and buy, because fear is very powerful.  It also makes it hard for the smart investor to sell when everyone wants his investment (that greed emotion)

People who saved some money waiting for a good time to invest should do well in the present economic cycle. 

Even if they didn't save, they may do well using other people's money.  I started buying houses in the early 90's and bought almost exclusively owner contracts.  Over the last several years I had to limit buying to outer areas (remote) but it looks like there will be deals to be had in town again soon.


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