Don’t Stop Fortune Hunting – Money Making Opportunities Are Everywhere

So close yet so far. Giraffe reaching for leaves.

When I was 23 I got lucky, very lucky. No, a Ford agency supermodel didn’t decide to stalk me around Manhattan and show me off to her beautiful friends in case we didn’t work out. Instead, a $3,000 investment turned into $155,000 in two months. The stock was VCSY a Chinese internet company with a homepage consisting of a simple dial pad. I had no idea what the company did except for the fact that Internet + China in December 1999 sounded like a fantastic idea during one of the greatest bubbles of our times.

VCSY went from around $3 to $6, did an inexplicable 20-for-1 stock split and then went up to around $9. In other words, it went from $3 to $180 pre-split and I had 1,000 shares. The stock’s move was one of the most ridiculous things I’ve ever seen as everybody I knew on the Street started piling into the name. I eventually got out of the stock at around $155 a share, netting a cool $153,000.

I proceeded to do what every foolish 23 year old would do and blow it on things! I bought a 600cc racing bike along with a second hand Volvo 850 GLT. At least I didn’t go out and buy a pound of coke. The safety of the Volvo was a way to balance out the risk of death during wheely popping attempts on FDR drive at 100mph. With both vehicles came insurance payments and a $300 a month parking bill. Yes, even back in 2000 parking was that expensive in lower Manhattan.

My biggest regret wasn’t actually spending $25,000 on goodies after the financial windfall. My biggest regret was not investing MORE into VCSY! I could have put in up to $20,000 worth in the name because I just received my first stub bonus after starting work in the summer of 1999. Meanwhile, the ritual of saving more of my after tax paycheck had begun because getting into work before 5:30am and regularly leaving after 7:30pm didn’t seem sustainable long term. Unfortunately, I was too chicken shit to dump everything into VCSY. If I did, the $20,000 could have turned into a cool million! Sob. So close, yet so far from being able to make it rain!

Ever since the spring of 2000, I’ve regretted not taking more risk. I swore to swing for the fences more often with the new found capital. Instead of fulfilling my oath, I decided to cower in the corner like a scared child in the night because the internet bubble began to burst in March 2000. After a couple $10,000+ down days thanks to reinvestments in B2B stocks like Ariba Technologies I bid the stock market casino sayonara! The one year time period of confusing brains with a bull market was over.


How To Make A Lot Of Money In The Stock Market And Still Feel Like A Loser

Sea turtles on the beach

Slow and steady often wins the race.

On May 5, 2013 I wrote an article called, “Should I Invest In China? A Top Down And Bottoms Up Perspective.” My simple thesis was that with the Yen depreciating to 100+ due to Abenomics coupled with strong world markets, China must inevitably catch up in a risk-on environment. I then identified the Chinese internet space as the most laggard sector where investors should consider putting money to work. Chinese internet stocks have been going straight down for two years. Stock picks included BIDU, SINA, and RENN.

So what happened with the stock picks since then? And more importantly, did I put my money where my mouth is or was I just pontificating like some useless Wall St. research analyst does with Neutral/Hold/Wait And See ratings? I hope you know by now that I don’t like wasting time writing about things I don’t know or care to act upon. Of course I invested in my thesis. I just didn’t invest enough.

Almost like magic, every single name ramped higher by 15-25% within three weeks after publication while the broader markets climbed 2%. It was almost as if someone got a hold of my article and forwarded it around, causing a buying frenzy. If there’s a chance this is true, is there any wonder why hedge funds keep their holdings as close to their chests as possible?

Since publishing my post on China, my IRA grew by roughly $40,000. Sounds OK right? Not really since I started off with $400,000 at the end of April. I will usually take a 10% gain for the full year any day. However, a 10% gain is a 5-15% underperformance of my stock picks, equating to roughly $20,000 to $60,000 in money left on the table.

So what the hell happened to cause such a leakage in performance you ask? Ill-timed accumulation and exiting of positions as well as FEAR. Remember, I am the King of bad trades. The below chart shows the value of my IRA portfolio today. The pending activity is pending cash as a result of $209,913 worth of stock sales as I’m continuously worried about a market correction. I already sold $168,006 worth of stock several days earlier. At the same time, I’m not willing to place massive short bets either because the market is being artificially propped up by the Fed.

Current IRA portfolio.

IRA portfolio 5/22/13


The Ideal Withdrawal Rate For Retirement Does Not Touch Principal

Resting Old Man Of SantoriniIf you have tremendous money strength, you will never have to draw down on your retirement principal. Your goal, if you choose to accept, is to create an estate that will provide for your loved ones long after you are gone. This is what endowments do. Why not consider doing the same if you are a magnanimous and financially savvy individual? You’re reading Financial Samurai after all!

I always scratch my head when I hear advisors talk about the “4% withdrawal rule” or any withdrawal rate that’s greater than a risk free rate of return for that matter. Times have changed folks. Interest rates are close to zero, the stock market isn’t a slam dunk, and we are living much longer now.

There are so many variables that it is impossible to calculate a bullet proof withdrawal rate rule unless that rate is 0%. Sure, there’s a 99% chance you will die before 110 and a 99.9% chance you’ll die before 150, but who really knows? We might be one with machines by the year 2030 and live forever!

Instead of thinking about how much you can withdraw to bleed your retirement funds down to $0 by the time you die, I highly encourage everyone to think about leaving a financial legacy for your loved ones that is so great you’ll never run out of money. Even if we fail to come up with a perpetual giving machine to leave for others, the end result will be much better than if we only focused on ourselves.


Use Rule 72(t) To Withdraw Money Penalty Free From An IRA

View from Koko Head, Oahu

View from Koko Head, Oahu

After rolling over my 401(k) into an IRA, I’d like to focus on potentially the single most beneficial reason why everyone should convert their 401(k) into an IRA after they leave their jobs: Rule 72(t).

Rule 72(t) allows for penalty-free withdrawals of your IRA account before the age of 59.5 provided that the IRA holder take at least five “substantially equal periodic payments” (SEPPs). The amount depends on the IRA owner’s life expectancy calculated with various IRS-approved methods.

Three IRS approved methods to calculate SEPP:

1) Required minimum distribution method: This method takes your current balance and divides it by your single life expectancy or joint life expectancy. Your payment is then recalculated each year with your account balance as of December 31st of the preceding year and your current life expectancy. With this method, your payments will change depending on your account value.

2) Fixed amortization method: This method amortizes your account balance over your single life expectancy, the uniform life expectancy table, or joint life expectancy with your oldest named beneficiary. Such a method is more stable.

3) Fixed annuitization method: This method uses an annuity factor to calculate your SEPP. It’s hard enough calculating life expectancy and portfolio performance, let alone forecast interest rates for annuities so let’s skip this method.

The most common withdrawal calculation method is #1. I’d like to use my example for how using Rule 72(t) can help an early retiree extract more income and lead a more comfortable financial life.


Should I Invest In China? A Top Down And Bottoms Up Perspective

Chinese flag on a light poleThe Nikkei 225 (Japan’s major index) is up over 60% since the election of Prime Minister Shinzo Abe on September 26, 2012. Abe has vowed to re-inflate the lagging Japanese economy with a target inflation of 2% through aggressive quantitative easing, setting negative real interest rates, and aggressive fiscal stimulus. So far, investors are in full belief of “Abenomics.”

One of the key results of effective quantitative easing is a depreciation of the Yen. The Yen has depreciated by around 25% vs. the USD and other major currencies. A weaker Yen is exactly what Japanese ministers need to reinvigorate Japan’s enormous export economy.

It’s apparent at least here in the US that Japanese electronics have waned with the rise of South Korean products from Samsung, KIA, and Hyundai. You wouldn’t be caught dead in a Hyundai 15 years ago. Now everything seems alright. Heck, the most popular YouTube sensation is PSY, a Korean pop singer.

Japanese electronics have always been considered of superior quality with premium pricing to boot. Now the difference in quality seems negligible at best, so prices must come down to stay competitive. A depreciating Yen is doing exactly that, while allowing manufacturers to save face by not cutting prices.

But let’s forget about the South Koreans for a while since they aren’t the Asian superpower the United States are worried about. Let’s try and get into the minds of the Chinese.


Good Advice On How To Better Manage Your Own Money

Waialae Golf CourseFor two decades I’ve been managing my own money. It all started when I saved up $3,000 from random minimum wage jobs to open up an online trading account under my father’s guidance. This was in the early 90’s when Charles Schwab first came out. One time I bought a company which I thought sold software, but was actually a bank! Clearly, I had no idea what I was doing. Thankfully, when you start off with only $3,000, the most you can lose is $3,000.

When it takes you several summers at $4 an hour to squirrel away $3,000 only to see half of it vanish in a matter of months due to poor investment decisions, you kind of curse the world. But, you also learn from your mistakes so you can minimize the experience of feeling that dull knife slicing through your financial security. Losing money early on taught me the importance of managing money.

Although the financial crisis of 2008-2009 certainly gave my net worth a massive uppercut to the chin, I didn’t panic. I just started this site and have more than doubled my net worth since then as everything has more than recovered as well. I credit net worth diversification to surviving the crisis and not jumping off a bridge when the S&P 500 hit 666. I also credit my childhood stupidity.

In this article, I want to provide the best advice on how to manage your own money. We will talk about fundamental principles as well as mental states you should accept if you want to continue growing your wealth over the long term.


How To Stop Haters From Hating You

Lucky Penny by Untemplater.comThe Boston attacks are a stark reminder of how much hatred there still is for America. Sadness has turned to anger as the country pulls together to understand why and move forward. It’s been more than a decade since 9/11 and yet I still think about what happened all the time after being on the top floor of WTC 2 for a conference just months before.

There are an estimated 7 billion people on Earth today. If only 0.1% of the population hates us, that’s still 7 million people who might very well be ready for war. We are a rich country full of opportunity, yet not everybody can have our same opportunity. The more successful we become, the more risk we face. The more we act as the world police, the larger resentment grows.

Whenever I meet someone in person, I do my best to downplay anything I’ve done that might seem successful. It helps that I’ve removed myself from corporate America and no longer have the desire to compete for money or status. I’m acutely aware of the widening gap between the haves and the have nots thanks to an unlevel playing field. The undercurrent of anger flows strongly through society, ready to drown anybody who is perceived to have more. Hate is part of the reason why I recommend everyone align themselves with the middle class. Blend in so that nobody can target you.

When I believe in something strongly, I will tell you so. If you demonstrate kindness, I will try to show more kindness. If you attack my honor, I won’t hesitate to defend it by confronting you and kicking your ass. What’s the point of studying martial arts for so long anyway? I do enjoy the occasional conflict if there is an intellectual debate. It’s when things start getting personal where I draw the line.

When you have what someone wants but can’t have, you’ll undoubtedly encounter some sort of conflict. One quick check at the background of your haters will reveal they have the most insecurities about themselves. Maybe they are lonely or work a deadend job they can’t escape. Constantly comparing ourselves to others is a sure fire way to zap happiness from our souls.


How To Lower Your Property Taxes: An Inside Look At How Property Assessors Screw Homeowners

Spring Blooming Cherry BlossomsYour property assessors’ #1 goal is to collect as much property tax from you as possible. Your goal as a homeowner is to make your home look like the dumpiest of dumps to pay the least amount of property tax possible. An asteroid could wipe out your entire city, but if the assessors office survives, they will come for you to collect!

Ever since the downturn, I’ve religiously filed a property tax appeal to get my assessed value lowered. In the midst of the financial crisis I was shocked that the assessors office appraised my primary residence for $100,000 more. If they got away with it, I would have paid roughly $1,200 more in property taxes that year. I ultimately won my appeal three months later and kept my assessed value the same as before.

For the next three years I got more aggressive and managed to lower my assessed value $100,000 below my purchase price. When the world is falling apart, it’s an easy sell to say your property’s value is also going down the tubes. In fact, my goal is to get the city to assess my property as close to $0 as possible.

Now that real estate is roaring back, I’m having a much harder time convincing the city I live in a rundown shack. This post will highlight how I almost got screwed over by the San Francisco property assessor again, and how I fought back and came to a compromise. Just like how every homeowner should be taking action to refinance their mortgage, every homeowner should take action by filing property tax appeals!


Three Bad Jobs That Can Eventually Make You Rich And Happy

Fast Food JobIf I wasn’t whipped so hard during my first job out of college, I never would have saved over 50% of my after-tax income every year for 13 years in a row. I probably would’ve blown the majority of my income on fancy cars, late nights at the clubs with bottle service, and frequent weekend trips to Atlantic City or Vegas.

At age 22, I already had the penchant for the good life having finally landed a plum job in finance. Going from making hardly anything to making a tidy sum very quickly is a very dangerous situation (think lottery winners). When your peers are recklessly spending money every weekend, it’s very hard not to follow. But I didn’t follow because of the jobs I once had.

Getting in at 5:30am and often leaving after 8pm was NO FUN. I gained 15 pounds, was constantly sick, and became a stress case. I also worked most weekends for the first two years because I was a dumbass who needed to learn more about finance if I was to sound remotely intelligent with clients. Each minute I worked past the 12 hour mark was a reminder to keep on saving money. There was no way I could last for more than three years in this cutthroat business I remember telling myself.

Before the post college lashes, there were three other jobs that helped me prepare for the real world. I hope to never do any of these jobs again, but never say never when you’re unemployed. What I realize today is that adversity builds character. The following three jobs helped prepare me to navigate workplace politics, resolve conflicts with employees, endure marathon work hours, produce consistent work and appreciate the value of a hard earned dollar.


Should I Convert My 401(k) Into A Rollover IRA?

Samoyed doggie Rollover IRAI recently decided to convert my 401(k) into a rollover IRA and I’d like to share with you why. Given I no longer have earned income, I can no longer contribute to my 401(k) as an early retiree.

The market is fully valued in my opinion which means I see a greater risk of a pullback than continued gains heading into 2016 and beyond.

Even though my 401(k) has 40 or so mutual fund choices provided across various sectors, countries, and asset classes, it isn’t enough for what I want to do. Many people who rollover their 401(k) feel the same way.


1) More selection. I always want to be fully invested in my 401(k) because I’ve got other portions of my net worth in risk-free investments such as CDs. I treat my 401(k) like my own little hedge fund or mutual fund and so should you. You wouldn’t invest in a mutual fund that decides to go 80% cash because the reason why you are investing in a mutual fund is for equity or bond exposure. Equity mutual funds also have restrictions to how much cash they can hold e.g. usually 5% maximum.

My 401(k) is restricted to mutual funds only. I cannot buy specific stocks or ETFs nor can I short any securities as a hedge. To get short the markets I either have to go to cash or buy a bond fund, which admittedly turned out quite well (Read: The Proper Asset Allocation Of Stocks And Bonds By Age and see VUSUX). In essence, I wanted to move from being a macro fund to a hege fund who picked specific stocks with the flexibility to hedge. Names such as Apple, Baidu, and Sina are on my list.

2) Lower costs. The only costs you have when buying a stock is the transaction cost. I get 100 free trades for the first year of my rollover, so my transaction costs will likely be nothing for one year. ETF costs are usually 0.1% or less, which is why the ETF industry has grown tremendously at the expense of the actively managed mutual fund industry.

I ran my 401(k) through Personal Capital’s 401(k) Fee Analyzer and discovered my existing portfolio at the time would have cost me $1,700+ a year. That’s a ridiculous sum of money to be losing. I can easily construct my own portfolio of specific stocks and ETFs for $0 fees or probably less than $100 a year on a ~$400,000 portfolio. That’s a no brainer in my mind. If you haven’t run your 401(k) through the fee analyzer, I strongly suggest you do, especially since it costs nothing.

3) Less trading restrictions. My 401(k) and practically all 401(k)s have trading restrictions for the number of times you can rebalance a year. My old 401(k) restricted me to 13 rebalances a year until I would be locked out from rebalancing for a full three months after the limit was hit. Even if I wanted to move a miniscule 1% from one fund to another fund, that would count as a rebalance.

One probably shouldn’t conduct more than four major rebalances a year, but if you really like to optimize your portfolio by sticking to some specific percentage balances, 401(k) rebalancing restrictions are quite onerous. With my rollover IRA I can trade as much as I want provided I have the cash balance. Read: How Often Should I Rebalance My 401(k) A Year for more thoughts on the topic.

4) Less tax headaches. If you like to trade, you will have to reconcile your trades (report your cost basis) every single year to the IRS. About 10 years ago I completely forgot to report the cost basis for around $2 million in trades for some reason. The IRS therefore thought I made $2 million in trading profits and sent me a tax bill for over $500,000! In reality, I probably made only around $30,000 in profits as the $2 million was simply the total value of transactions. I sent in my individual costs by security and they exonerated me from the bill a couple months later.

With the rollover IRA, you can literally make a million trades and you won’t have to input a million reconciliations because the IRS only taxes you during the time of withdrawal on the total amount. This is something many people do not realize so feel free to ask questions in the comments section if you are unclear. The IRS doesn’t see all the buys and sells in your 401(k) either, but you are restricted from the amount of trades you can make. For those with a tendency to trade, a rollover IRA is much better than a 401(k).

5) Penalty free early withdrawals. There is an interesting rule called the 72(t) distribution which allows for early withdrawal before the age of 59.5. The catch is that once you elect to withdraw early you must continue to withdraw for five years or until you turn 59.5, whichever is longer. Your principal withdrawal is going to be taxed as ordinary income taxes so there is no free lunch.

The 72(t) distribution is great for folks who have retired early and have a sizable IRA they would like to tap. Let’s use me for example. I retired at 35 and have a rollover IRA that is worth roughly $400,000. I’m moving from the top income tax bracket of 39.6% to the 25% tax bracket thank goodness. What I can do is comfortably withdraw $10,000 a year in principal for 25 years until I’m 60 since some of the $400,000 is due to gains. Taking out $250,000 at a 25% tax bracket vs. a 39.6% tax bracket is roughly $37,000 less in taxes I’ve got to pay!

The 72(t) distribution is another reason why I’m against a ROTH IRA (pay taxes up front). You aren’t going to be making more money and paying a higher tax rate in retirement than when you are working.


1) May blow yourself up. With a wider selection of securities to choose from, you will be tempted to invest in things you wouldn’t normally be able to buy in your 401(k). I’m constantly going after higher risk, growth stocks like Apple, Baidu, and Sina. Apple doesn’t seem to expensive, even at record highs, but who knows about the Chinese internet names? It’s easier to speculate more once you have more options. A 401k, and its limited options of funds may save you from yourself!

My 401(k) would probably only fluctuate +/- 15% for a 12 month period based on how I’ve constructed my portfolio. With Apple, Baidu, and Sina I could easily see +/- 30% swings to $280,000 to $520,000+. Please note that I’m just using these three stocks as examples for the present time and ideas are constantly changing.

2) Might be more stressful. When you’ve got all the power, all the glory and all the pain is on you. I used to check my 401(k) linked to my Personal Capital account along with other portfolios maybe once or twice a week to make sure everything is on track. Now I check my rollover IRA on a daily basis because I’ve got much higher risk with single stock investments. Speak to any hedge fund analyst or manager and they will tell you they are always on because of what’s going on in the Asian markets at night and the European market closing during our early mornings.

You can easily reduce your stress by having a more diversified rollover IRA portfolio that mimics exactly what you would have bought in a 401(k). But I’m a balls to the wall type of guy who bets big if I believe strongly in something. Having 25 positions at 4% each is very uninteresting. Give me five positions at 20% each or even three positions at 33% each and it’s game on! One of my biggest regrets at age 22 was not investing more in a stock that returned 50X in one year. At least I did invest several thousand dollars which I parlayed into my first rental property.

We can talk about portfolio theory and the efficient frontier in another post. I’m very risk loving with my rollover IRA because I don’t need the money and I can’t touch the money without penalty until age 59.5. My pre-tax retirement portfolios have always been seen as funny money where the government could easily taketh away.

3) Retail prices. Your 401(k) plan will probably have institutional prices for their mutual fund offerings which are lower than retail prices. Think of lower pricing like buying at Costco or group health insurance. Retail investors don’t have bulk pricing power and therefore will pay more for the same fund in an IRA most of the time. The PIMCO Total Bond fund has an expense ratio of 0.46% for institutional investors and a 1.6% expense ratio for  class C retail investors. Hence, if you like your mutual fund selections in your 401(k) then it doesn’t make sense to leave your 401(k) and buy the same mutual funds in your IRA.

4) Have to make an effort. Rolling over your 401(k) into an IRA takes action. Most people I know are either scared of investing or too lazy to stay on top of their investments. I didn’t roll over my 401(k) for one full year because I was happy with just making macro bets and didn’t want to bother trying to figure out how to rollover the portfolio.

Luckily it’s the year 2013 and the internet has made things as easy as cake. I logged onto my Fidelity account and clicked the “rollover” option, answered some questions and viola! My rollover IRA was available the very next day. I think all of the major financial firms that have 401(k) plans also have rollover IRA options. It’s much easier than you think. Just give them a call or click around on the homepage.


I recommend everybody who has lost a job or who is transitioning to a new job to rollover their 401(k) into an IRA due to an increased selection of investments, lower expenses, and more flexibility. Just be honest with yourself in understanding your own risk tolerance and gambling tendencies. Make no mistake that the stock market is the world’s largest casino. There’s a reason why vernacular such as “making a bet on XYZ stock” exists. Nobody knows the future, but we can all make educated investment decisions.

Please continue to do your best and max out your 401(k)s and IRAs in the meantime. The contribution limit has gone up to $18,000 for 2015. You will surprise yourself by how quickly your contributions add up over time!


Stay On Top Of Your Money: If you want to build wealth, you need to know where your money is going. Sign up for Personal Capital, a free online wealth management tool which keeps track of your income and expenses, tracks your net worth, and provides portfolio analysis tools to see if you are properly positioned and paying too much in fees. I personally am saving over $1,700 in annual portfolio fees I had no idea I was paying after running my 401(k) through their Fee Analyzer tool!  My rollover IRA now costs under $450 in fees annual based on a ~$450,000 portfolio.

Another excellent tool they just rolled out in 2H2015 is their Retirement Planning Calculator. Unlike other retirement calculators, Personal Capital’s takes your real data from your linked accounts and runs thousands of algorithms through a Monte Carlo Simulation to produce the most realistic future financial scenarios possible. You can recalculate with multiple variables. I definitely recommend running your current finances through various scenarios to see how you’re doing. Everything is free.

Retirement Planning Calculator

Sample retirement planning calculator results

Updated on 8/5/2015. Volatility has returned to the markets after a long bull run. Never confuse brains with a bull market!