Party Like It’s 1999! 10 Takeaways From This Recession

In the past 10 years we’ve come full circle and finally rere-breached Dow 10,000 yesterday!  Bust out the party hats and call up your favorite car dealer, because money is now raining from the sky!  I fully admit that being defensive so far this October has been wrong.  Instead, I should have taken the illusory $400,000 in home equity increase Zillow told me, dumped it in my E-trade brokerage account, levered it up to $1.2 million and bought 35,000 shares of DDM (Ultra Dow30 ProShares ETF)!  Too bad, I’m too conservative and not smart enough to realize the world has changed.

This year’s rally has been outstanding, and the more I get to know the personal finance community, the more I realize that A LOT of you are making a lot of money.  From one PF blogger who writes his site helped lead him to a job earning  50% more, to another’s proclamation of a 10% net worth jump in September, it’s clear that a lot of people are doing very well in this recovery.  I’m watching all of you, especially those who provide such transparent net worth updates!

I rarely hear negative anecdotes about job losses and foreclosures anymore.  Instead, there are a bunch of you who are buying new homes (congrats and good timing), steadfastly paying off debt, and finding new wealth.  The bus is like a can of sardines every morning, and I can no longer walk into my favorite restaurants without a reservation.  If that’s not the best indicator of a bull market, I don’t know what is.

10 TAKEAWAYS FROM THIS RECESSION

Zillow Says I’m $400,000 Wealthier! Why Net Worth Is Rubbish

Primary Residence Zestimate

Primary Residence Zestimate

To prove our point regarding “Your Net Worth Is An Illusion” I took a look at Zillow’s latest zestimates of my primary residence and rental property.  Apparently, in a span of 3 months, my primary residence gained a whopping $300,000! I’m popping open a bottle of  Crystal, buying a rose gold Patek Philippe Calatrava at Tiffany’s, and ordering the Audi R8 on as we speak.  Just kidding, especially since September is frugality month. Besides, Zillow isn’t writing me a check for $300,000!

The dollar sign shows the purchase price after a 4 month escrow that began in late 2004.  In other words, the purchase price was $250,000 below what the zestimate measured as fair value in the middle of winter.  You’d think that after 4+ years of existence, Zillow’s price algorithms would be more refined.  Perhaps the data is legit, but I’m not buying it. Since net worth calculations don’t include one’s primary residence, let’s strike this example and look at a rental property.

Your Net Worth Is An Illusion, Sorry To Spoil Your Delusion!

Unless your house is fully paid for, and unless you can access your retirement accounts today, your net worth is an illusion.  Although we’ve recovered quite a long way over the past 18 months, I don’t think we can really count on property, stocks, and private equity investments to be there when we need them.  The recent market volatility reminds us to get realistic!

The only thing we can really count on is cold, hard cash.  I find it very misleading, as well as a little disingenuous that some say they are millionaires, when 70% of their net worth is tied up in an illiquid asset called “home equity.” Your home is only worth as much as someone is willing to pay for it.  Even your 401K and IRA are suspect because those accounts can easily collapse.

A TYPICAL ASSET SIDE OF A NET WORTH CALCULATION:

Get Rich In September & Buy Nothing!

Valuations Gone Wild

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

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.