Investments | Financial Samurai

Get Rich In September & Buy Nothing!

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.

I don’t see the Dow Jones breaking 9,700, nor do I see the S&P breaking 1,040. This is it, we’re here and it’s time for a pull back. At 129X P/E this year for the S&P, earnings are going to have to roar back for valuations to get down to prior peak levels of 40-45X. It’s always dicey when the markets rally ahead of earnings. Now firms must execute, and rely on the consumer to leverage up again to drive corporate profits. Good luck to that!

Even if the markets continue to rally and we aren’t fully invested, we still win because the labor market tightens, wages go up, and job security increases. That said, I plan to spend money on nothing except for food and shelter this September. No clothes, no new gizmos, no unnecessary strolls to the mall. September is austerity month, and I’m going to bank all disposable income away! Who’s with me?

RECOMMENDATION

Invest In Ideas Not Stocks: Motif Investing is a terrific company based right here in the San Francisco Bay Area. They’ve raised over $60 million dollars from smart investors such as JP Morgan and Goldman Sachs because they are innovating the investment landscape with their “motifs.” A motif is a basket of 30 stocks you can invest in, which are aimed to profit from a specific idea or underlying theme. Let’s say you think new housing construction is going to quicken in the US next year. You could buy a housing motif which might contains Lennar, KBH, Home Depot, Bed, Bath, and Beyond, Zillow, and more in various weightings.

You can buy a basket of 30 stocks for only $9.95, instead of buying them individually for $7.95 through a typical broker. You can build your own motif, buy one of the motifs created by Motif Investing, or buy a motif by a fellow Motif Investor with a great track record. You can even buy retirement motifs, much like target date funds, except you don’t have to pay the 1% management fee. You get up to $150 free when you start trading with Motif Investing. Given my focus on buying winning long-term ideas and ignoring the short-term volatility, I really like Motif Investing’s value proposition for retail investors.

Updated on 12/1/2014. Let the bull market continue. Just don’t forget to rebalance.

The Most Overrated Businesses – Restaurant Is #1

Posted by Financial Samurai 6 Comments

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

Restaurant
Direct Sales From Home
On-line Retail
High-End Retail
Independent Consulting
Franchise Ownership
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.

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Does Bernie Madoff Win In The End?

Posted by FS 13 Comments

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?

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Everybody’s A Financial Genius!

Posted by FS 6 Comments

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!

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Be Your Own Venture Capitalist & Build A Broad Portfolio

Posted by FS 6 Comments

By the time Baidu, the “Google of China” went public, Venture Capital firm Draper Fisher’s 28% stake was worth over $1 billion dollars by the end of the trading day. Not a bad return considering their likely sub-$50 million investment just years ago! In a world full of strikeouts, it just takes one home run to win a ball game.

The Financial Samurai reader is savvy enough to know that strong work ethnic and good morals are key pieces of the success puzzle. Sometimes you just need to be in the right place at the right time. When Venture Capital firms fund startups, they are looking to take equity stakes in companies in a robust industry, lead by visionaries who can execute towards enormous profit potential. The majority of investments go bust, and the successes often take years and tons of selfless involvement before returns are seen. Eventually, the exit strategy is for their investment to get acquired or IPO.

We have the opportunity to be our very own individual venture capitalists everyday. Many of us may take for granted the people we meet, but not you. After all, all it takes is one billionaire to give you one million dollars before you’re rich right? Receiving an opportunity is what it’s all about. You’re reading this post essentially because like me, you want to be financially independent sooner, rather than later. The ability to be financially independent by 40 is the reason why we work so hard now. If the deadline was 20 years longer, where’s the fun and challenge in that?

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Government Employee Entitled to A $100,000,000 Bonus!

Posted by FS 18 Comments

Yes, I know I’m being a tad bit facetious here, but not really. After getting US$45 billion in government aid, the US government and we the people of America own roughly 36% of Citigroup. The interesting debate is whether Citigroup employee, Andrew J Hall should be paid his $100 million bonus as described in his contract.

Most initial responses are with a vehement “HELL NO!” Who on earth deserves to get paid that much, people must think. However, what if Andrew Hall was responsible for bringing in $1 billion in revenue? Is it so egregious to pay the man responsible, a 10% cut? After all, $900,000,000 sure does employ and pay for many other Citigroup employee’s salaries! Should Citigroup risk not paying their star, and his team of employees for the overall sake of the firm and shareholders? As one colleague aptly put it, “RB, we live in America not North Korea!”

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Survey Says: Get 1,300 on Your SAT’s and a 3.9 GPA And You’re Set For Life!

Posted by FS 12 Comments

A very interesting article in the New York Times highlighted PayScale’s survey of 1.2million college graduates to find out what they made right out of school, and 10 years after graduation. If you look at the picture, it’s interesting to note that the majority of schools are: 1) Private Schools, and 2) Highly Ranked in US News & World Report and other popular college rankings.

The average SAT and GPA scores of these 20 schools are roughly 1,300 and 3.7, respectively. Hence, one could argue that the key to making a six figure income 10 years out of school is simply high test scores and good grades! As such, it behooves all incoming 9th graders to recognize their grades accumulate from 9th to 12th grade, and not to mess their chances up of getting into Dartmouth, UPenn, and Yale.

IN THE LONG RUN

I really used to think education was not very useful since we forget much of what we learn. But, as I grow older, it becomes apparent that many of the most successful people we know have been very well educated. Barack Obama went to Columbia for his BA, and Harvard Law School. George Bush Senior went to Yale, and even Bush Junior went to Harvard. Say what you will, but anybody who becomes the President of the Free World is successful in my eyes. In the long run, the cream rises to the top, be it whip cream or sour cream.

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