On Saturday, July 16, 2014 I played in a tennis tournament with a partner that worked at Trulia, an online real estate company. He just got his job and was explaining to me how the company makes money through its ad placements for Realtors. If you’ve ever wondered why companies like Trulia and Zillow have done nothing to lower selling commission rates from 5%, it’s because real estate agents are their clients. Asking how a company makes money or plans to make money is always my number two question after understanding what the company does.

We had a really fun time playing against Berkeley Tennis Club across the bay. After getting home, I decided that I was going to buy Trulia stock because I liked their business model, the stock had corrected somewhat, I was bullish on the real estate market, and it seemed like a prime takeover target. I was set on buying $50,000 worth of the stock on Monday, July 18.

For some reason, I got too busy that Monday and didn’t execute my order before 1pm PST. Mondays and Wednesdays were my consulting days for one of my ex-clients. I forgot about buying Trulia that entire week until I saw news after the close on July 28, 2014 that Zillow was acquiring Trulia for $3.5 billion in stock at a 25% premium! Damn! I could have made $12,500 in just a couple weeks!

What a shame. Or how fortunate. Let me explain.

I’m in the camp that interest rates will stay low for years to come because of the following reasons:

* Information efficiency
* Economic slack
* Contained inflation
* Coordinated Central Banks
* The growth of China and India and their continued purchasing of US debt
* The growing perception that US dollar denominated assets are the safest assets in the world
* A 30+ year trend of declining rates that is telling us we’re more adept at managing inflation with each new cycle that passes

But let’s say I’m wrong. Let’s say rates start rising aggressively since the Fed started raising again in December 2015 and again in December 2016? Where should one invest? What else should one do? To answer these questions, let’s first look back at history and get smart!

On January 30, 2015, I finally opened up my first Motif Investing portfolio with $10,000. I waited until the end of January because I felt there was a lot of uncertainty in the market (there still is), and I was also taking my sweet time doing research on the 30 companies and ETFs I wanted to purchase.

Goals For Investing

1) To fully experience the Motif Investing interface to know about the good and the bad as an investor and as a consultant to make suggestions for further improvement.

2) To deploy $10,000 worth of cash that was just sitting in my bank account in order to make more than a lousy 0.1% interest. I’ve made it a habit of investing some amount of money in the stock market through my SEP IRA, 401k, Solo 401k, private wealth management account, or online brokerage account every month for over 10 years. I suggest doing the same as you’ll be surprised how quickly your balances add up!

3) To finally build a legitimate portfolio in an after-tax brokerage account, instead of just speculating on one to three stocks at a time. The portfolio is a comprehensive growth-oriented, special situations portfolio which is supposed to be diversified enough where rebalancing more than once a quarter is NOT necessary. I’m no longer actively looking for home run stocks because I’ve already built my financial nut. Instead, I’m looking for moderate growth in the 7%-12% range for my overall portfolio.

4) To follow the financial markets more carefully. From 1999 – 2012, I spent 5 – 10 hours a day reading investment research, watching financial news, reading financial news, following global politics, monitoring economic indicators, dialing into conference calls, and speaking about companies with clients. Then I’d start going for days without checking anything at all because I was so focused on building my online business. Having an active investment portfolio helps keep my mind sharp so I can make more intelligent investments, and be more knowledgeable when talking to others in the industry.

5) To create a community based investment portfolio. Back in 2010, I actually created a fictitious fund called The Samurai Fund made up by stocks picks from the community. It was fantastic fun that blew away the S&P 500 index thanks to crowdsourcing. For example, my pick was ticker symbol SAM of course, the Boston Beer Company that produces Samuel Adams beer. I bought the stock at $46.60, when the market cap was at $668. The share price is now at a whopping $272 with a market cap of $3.54 billion for a return of 483%!

There are plenty of investment enthusiasts reading Financial Samurai, and I’d love to engage all of your thoughts about the markets, the current positions in the motif, and what trades should be made, if any. Perhaps we can all become better investors and make more money if we put our heads together because it’s hard to keep track of everything, all the time. We can essentially create an investment club with ongoing discussion in the comments section of these quarterly posts. 

One of the questions I asked in my accredited investor post is whether the current definition of accredited investor is fair or not. 61% of you voted that the Securities And Exchange Commission (SEC) should not dictate who can and cannot invest in private offerings. Only 31% of you said the definition is currently fair, while the other 8% voted the SEC should raise the income and net worth limits.

As expected, some people shared their frustration in the comments section.

There was surprisingly little debate regarding my passive income investment rankings. Figuring out the five factor scores for each of the seven investments took about 10 hours to produce, so perhaps I was thorough enough to address all the points. Everybody agreed that dividend investing is one of the best ways to generate passive income. The two main investments that had the most discussion were Real Estate and Creating Your Own Product.

The pushback on real estate investing is that it feels too much like work. When you’re trying to find the perfect tenant and keep up with property taxes, real estate can feel like a bear. Meanwhile, nobody disagreed with Creating Your Own Product as being a top passive income generating asset. However, I just didn’t get the sense that anybody really got motivated to start creating something.

In this short post, I want to demonstrate via some charts and logical reasoning the power of purchasing rental property and creating a product.