Financial Samurai

Valuations Gone Wild

I declare September frugality month.  If I’ve learned anything from my 20+ years working, it’s that September and October are generally dicey months for people’s fortunes.  9/11 wasn’t good, neither was last September 15th when Lehman declared bankruptcy.   Since 1928, studies show that September is by far the worst month in the calendar year for performance at minus 0.7%.  Sentiment turns on a dime, and when markets rally 50%+ into the months of September and October, our risks are greater than our rewards. Read more…

Here are some of the most overrated businesses to start according to Kelly Spors and Kevin Salwen from the Yahoo Small Businesses page:

1. Restaurant
2. Direct Sales From Home
3. On-line Retail
4. High-End Retail
5. Independent Consulting
6. Franchise Ownership
7. Traffic-Driven Websites i.e. Financial Samurai, but also Facebook!

Almost 7 million have lost their jobs since this recession began, and the stock market doesn’t care about you. I do, and I’m worried that if 7 million new people can’t find steady income, and unemployment hits 11%, we will derail.  You derail, we derail and our plans for becoming independently wealthy early goes down the drain. Read more…

Honolulu, HI

BusinessWeek

comes out with a Top 10 list of best places to buy vs. rent.  This is their formulation in their words:

“To create a fair match-up between owning and renting, we calculated ownership costs assuming a fixed 30-year loan for 100% of the purchase price with no down payment. If they had instead decided to factor in a 20% down payment, owning would have been the cheaper option for the top 10 metros on our list.”

The problem I have with this list is that I don’t see the words “Honolulu”, “Newport Beach,” “Malibu”, “San Francisco”, or “Paradise”! Everywhere one wants to live is expensive, and everywhere one doesn’t really prefer to live is cheap. Things are cheap for a reason, and real estate is no different.

Think about prime real estate sitting a top a triangle. The triangle’s base always gets wider as demand continues to grow.  Meanwhile there’s only one prime location.  Is it no wonder why Realtors always talk about “location, location, location”?  You can also think of your sub-prime location as an inverted triangle ready to topple over.  Only a very few want to buy, and the supply is overwhelming.

During this real estate correction, you’ve seen expensive areas such as San Francisco correct 15-20% from the peak, however, drive out 1 hour east and places such as Antioch and Pittsburgh have gotten crushed by 40-60%.  If you’re an investor, focus on places where you’d actually see yourself willing to live in.  After all, if you wouldn’t want to live in your property, why would someone else?

A similar purchasing analogy can be made with cars.  You may think that someone buying a limited production Lamborghini Gallardo Spyder for $210,000 is foolish with his money.  But, after one year later, he’ll sell that Lambo for more, or at the least recoup more than if he had bought a brand new Ford Expedition for $48,000.  Obviously this example is extreme here, given most don’t have $200K to splurge on a car, but you get my point.

Things are cheap for a reason. Only if you have the financial means, and are already living in one of these 10 cities should you consider buying.  Otherwise, just focus on buying or renting in that tropical paradise in the best location possible.

Read more to see what paradise cities lie in BusinessWeek’s Top 10 list! Read more…

“Michael Vick – A Second Chance Or No?”

When Michael Vick was convicted of animal cruelty a couple years ago, he lost everything. Particularly painful was his $135 million multi-year guarantee contract from the Atlanta Falcons. Probably even more painful was the shame he felt and the 18 month experience in the slammer. He’s now free and signed with the Eagles for $1.6 million this season, with a potential to make $5mil next year if the Eagles choose to keep him. The question on many sports fans and animal lovers minds is: Should Michael Vick be given a second chance?
The question really has two parts. Should Michael Vick be given a second chance in the NFL? And should Michael Vick be given a second chance at life? After some thought, and seeing his latest appearance on 60 Minutes, I’m leaning towards acceptance and forgiveness.

Read more…

There are press reports that Bernie Madoff has cancer and doesn’t have many years left to live.  If this is the case, does Bernie win in the end?  For decades, Bernie has been pilfering his clients for millions, and living far beyond his wildest dreams.

Let’s say that through an honest living, he could have made $50 million over the past 30 years of work.  However, through his devious ways, he makes $450 million more.  Even though he’s in jail now, and spends 5 years before he dies at age 76, doesn’t he come out ahead despite getting the book thrown at him? Read more…

For a guy who doesn’t work anymore, my favorite part of the year begins soon.  In just a few moments, college football starts and many a Saturday will be wasted with guys and some girls zoned in front of their TVs or at their favorite bars rooting like crazies!

Surprise, surprise, the Florida Gators are the most favored #1 pre-season pick in history due to the return of Tim Tebow and an enormous core of returning starters.  You’d think that winning the Heisman and two National Championships are good enough, not to mention the millions waiting, but not for Timmy. Rounding out the Top 10 include:  #2 Texas, #3 Oklahoma, #4 Southern California, #5 Alabama, #6 Ohio State, #7 Virginia Tech,  Mississippi, #9 Penn State and Oklahoma State also tied at #9.

It’s good to see the Pac 10 get SOME love, with California coming in at #12, Oregon at #16, and Oregon State scratching in at #25 or #26.  After all, the Pac 10 conference is the only one to boast an undefeated 5-0 bowl record in 2008-09.  This compares favorably with the ACC’s record of 4-6, MAC at 0-5, and The Big 10 at 1-7!  But none of the experts care. The Pac 10 will always be underrated because the weather is too nice out here.

Let’s forget the ranking injustices for now, and focus on the monetary aspect at hand! Read more…

If there’s one thing I know I will regret 15 years from now, it’s not buying property over the next 12 months.  Last Friday’s 7.6% YoY jump in existing home sales was a big shocker that helped propel the stock market to new highs.  What’s exciting though, is that the property markets have lagged, creating what I think is a golden opportunity to pick up some rentals for one’s retirement.

If you look around the world, from the UK to Hong Kong, property prices have rebounded double digits this year. Yet, the US is slowly but surely coming out of price declines largely because of still massive consumer debt overhang.  Volume growth generally always supersedes price growth.  Who knows exactly when the property market will bottom, but what we do know is how to calculate simple math to make proper purchasing decisions. Read more…

Over at one of my favorite blogs, “Get Rich Slowly”, site owner JD writes how he successfully invested more money in the stock market earlier this year.  He wasn’t bragging, he was just stating a fact.  JD is very influential, especially given he has 68,000 subscribers!

What’s interesting to note is the commentary that follows his entry.  There are about 125 posts so far on the topic today alone.  Not bad, considering the 75% commentary range is between 60-90.  After reading every single comment here at home, it surprises me that over 80% of the readers have outperformed the S&P drastically and have made a lot of money.  80% compares favorably to studies which show that only 6% of active fund managers outperformed the S&P 500 over the last five years!

In one of the greatest stock market turmoils in our lifetimes, apparently the majority at GRS didn’t lose much money, didn’t capitulate at the bottom, and made some timely investments earlier this year to ride the rocket ship!   Read more…