Starting on May 1, 2020, my main focus has been to get as smart and as financially prepared about real estate as possible.
In May, I have:
- Gotten preapproved for a mortgage to give myself more firepower to take advantage of any deals.
- Analyzed all the closing costs for buying a home with cash and with using a mortgage so I can make a truer offer.
- Gone through the process of understanding whether using a real estate attorney is worth it or not to cover my bases.
I believe the easy money in stocks has already been made after a 25%+ rebound. Therefore, I’ve moved on to focusing on new opportunities in real estate. I’m always trying to think ahead, not behind.
After publishing my real estate attorney post, I got this comment from a reader:
I really like your blog and appreciate your clear thinking, concise writing, and wealth of knowledge. However, I’m a bit disappointed that since March 18 you haven‘t been covering the stock market and I am missing your help on interpreting the irrational developments there.
The question of “Do I need a real estate attorney?” pales in comparison to “How on earth can the stock market rally in face of the greatest recession since 1929?” I would really appreciate your wisdom here.
My first thought was how selfish I was to write mostly about real estate in May. Given I own Financial Samurai, I should write more about what other people want, not only about what I want.
My second thought was how I failed to properly communicate my thoughts on the stock market during this time of crisis. After publishing How To Predict A Stock Market Bottom Like Nostradamus on March 18, Tom thinks I’ve been radio silent.
A good teacher is only as good as the student who needs the most help in his or her classroom. I believe in leaving no one behind during this time period. Therefore, I have let down Tom and others who feel the same way.
To make things right, let me share my crystal clear thoughts on the stock market after a huge rebound.
My Thoughts On Stocks Since Predicting A Bottom
Let us first go through all my posts and podcasts on the stock market since I published my stock market prediction post on March 18.
1) On April 21, I produced the podcast episode, What The Doomer Bears Got Wrong, discussing why the stock market has rebounded so strongly and why it may continue to rebound.
2) On May 1, I published the post, Freedom Is Way More Important Than Money. The post not only talks about the importance of freedom, it also discusses how I de-risked and sold the stocks I bought in March. I also talk about how I’ve taken some profits on longer-term holdings like Tesla, which has had a ferocious comeback.
3) On May 6, I produced the podcast episode, Why The Paychecks Protection Program Could Cause The Stock Market To Sell Off, to warn investors that the PPP is losing steam and could trigger another correction. A lot of business owners are not going to apply to the PPP or use the PPP money as intended because there is a growing fear the loans will not be forgiven.
4) Finally, since March 18, I have published five newsletters talking about my views on the stock market as the newsletters are more news-oriented and real-time.
At the time of this publication, I have sold 100% of all stocks that I bought in March as well as some long-term tech stock holdings. As a result, stocks are somewhere around 18% – 20% of my net worth (similar level before the pandemic) versus around 25% during the height of the pandemic when I was actively buying.
My Thoughts On Stocks Going Forward
I am not chasing the stock market with my taxable portfolio money. I believe the market is now overly expecting a faster economic recovery than what will really happen. I’m hoarding cash and waiting for better investment opportunities.
The shelter-in-place rules are dragging on in parts of the country longer than anticipated, e.g. Los Angeles with its 2+-month extension. I was very hopeful that most of California would open up in June, but that’s looking doubtful as politicians go from locking down to flatten the curve to locking down until we find a cure.
I believe due to the generous government stimulus programs, fewer people will be inclined to go back to work sooner, thereby further delaying economic growth. If you can make almost as much working or more by not working, it’s only rational to max out your enhanced unemployment benefits. In addition, a large percentage of the jobs eliminated will not come back for years, if ever.
I believe valuations are too high because analyst estimates have not properly taken into consideration a much slower opening of the economy. The S&P 500 trades at roughly 22X forward earnings, which is the most expensive valuation since the early 2000s. However, valuations are likely to continue going up if the S&P 500 stays at this level because analyst earnings estimates will continue to go down. I’m not willing to pay top tier valuations when there is so much uncertainty, especially after a massive rebound.
Overall, my combined investment portfolios are now flat (+/- 1%) for the year due to my heavy position in tech stocks like Amazon, Netflix, Google, and Tesla and my overweight in bonds.
If I miss out on further gains because the S&P 500 reaches a new record high this year, so be it. Awesome! Go economy! My plan is to continue focusing on capital preservation and be happy with single-digit returns. I will be an aggressive seller if the S&P 500 breaks 3,000 again.
As for my 401(k), Rollover IRA, and SEP IRA, I continue to contribute the maximum to each of them in roughly a 70/30 equity/bonds split. These are long-term portfolios that won’t be touched for at least another 17 years. Yes, it still hurts to lose money in these funds.
Both my children’s 529 plans have been superfunded, so there’s not much more I can do there. The funds are in target-date funds that are based on my children’s potential matriculation dates.
My taxable investment portfolios are more important to me and more defensively positioned than my tax-advantageous retirement portfolios. They have to be in order to generate enough steady passive income to provide for two unemployed parents with two young children. They are also the main source for being able to buy another property.
For your taxable investment portfolio, try and shoot for 2X – 3X more than your pre-tax/tax-advantageous portfolio. Below is a guideline to follow if you want to achieve financial independence before 50. The higher amounts past 50 are more for those just starting off their financial independence journey.
Sadly, there is no Financial Samurai crystal ball. There is only me putting my thoughts out there in as logical a manner as possible. People can then look back years from now and make fun of my thoughts or praise them.
It doesn’t matter to me because there’s no profitable paywall on Financial Samurai nor am I managing other people’s money. The feeling of being able to do whatever I want is one of the biggest benefits of being free. I’m focused on managing my family’s money and not screwing things up.
Lessons Learned For All Of You
Thanks to reader Tom, he has forced me to review what I have done and not done for him. And what I realized from this review post are the following:
1) Visibility matters. No matter how much you produce, it doesn’t matter if you don’t properly highlight your work. As the saying goes, “The squeaky wheel gets the grease.” It takes a long time for me to think, write, edit, publish, and record these posts and podcasts. I’m wasting my efforts by not properly marketing my efforts.
Therefore, I encourage all of you to spend more time marketing your work if all you’ve been doing is producing. A 50/50 split in marketing and producing is something worth trying, whether you are a writer, entrepreneur, or a traditional worker. Do not believe in a pure meritocracy. Your good work will not always get noticed on its own.
2) You could probably try harder. Even though I think I’m working hard to help the Financial Samurai community navigate through this difficult period, based on Tom’s feedback, I need to try harder.
Instead of waking up at 5 am to write posts before my family gets up, I need to wake up at 4 am to write even more. The secret to getting ahead isn’t being the smartest person in the room. The secret to success is having the perseverance and grit to outlast and outwork your peers.
The next time you think you’re working hard, find someone like Tom to tell you the truth so you can test yourself even further.
3) Accept working for free. With soon to be over 40 million people unemployed thanks to extended lockdowns, the world is expecting more of us to do things for free. At the very least, expect the demands of your time to increase as your pay decreases.
I have written for free on Financial Samurai since July 2009 because it brings me joy to help and entertain others. Yes, it sometimes bums me out when readers demand more of my time when I feel I’ve given enough, but I need to accept reality.
As more people focus on taking first instead of giving first, you have the golden opportunity to do the opposite. If you give first for a long enough period of time, I’m positive great things will happen.
Besides, how awesome is it to get everything for free? Free college tuition, free legal help, free healthcare, free financial help, free house cleaning, free transportation, free massages, free housing, etc. Moving to the world of free sounds pretty good so long as we don’t have to pay for it.
4) People will only appreciate what you’ve done for them lately. It’s not good enough to only give away your time and effort for free. You must also continuously provide value. As Tom’s comment proves, even if I did help allay his fears when the stock market was melting down or help him mobilize excess capital for a profit, the goodwill doesn’t last very long.
People will either forget what you’ve done for them or they will simply take you for granted. You could have saved someone from drowning one year, but if you have done nothing for him the following year, you might as well be dead to him. If you want to get ahead, you’ve got to always think of new ways in which you can add value.
Feel that pressure! Only a very few people will care about your well-being. Folks are too busy caring about their own situation to have time for yours.
5) Take some personal responsibility. Although we live in a world where everything is free or is expected to be free, it is still incumbent upon you to learn about these free opportunities. Some people will just be too busy to guide you to Google to find an answer to your problem. Some people will just completely ignore you for being lazy. The more you can make an effort, the farther you’ll get.
6) Acknowledge feedback and make changes if necessary. Be careful with tunnel vision. You might get to your destination quicker, but at what cost? If you find yourself getting older and more set in your ways, being open to feedback is critical for improvement. If you are receiving no feedback, nobody cares. Thank you Tom for motivating me to write this post.
7) Make sure you still enjoy what you’re doing. You can’t always enjoy what you’re doing, but the good days better outnumber the bad days by at least 2:1. Otherwise, you should consider a different hobby or line of work. As soon as Financial Samurai starts feeling like a burden, I will sell the site and move onto something else. Thankfully, I love the perpetual good challenge.
Just Keep On Going
Sooner or later, the stock market will reach new highs. When it does, I hope all of us will profit in some way or another. You shouldn’t expect me to tell you exactly what to do with your money because I don’t know your goals, your financial situation, or your risk tolerance. Besides, I’m not your financial advisor. All I know is that you better enjoy the process.
The only thing I do is put real money to work based on my beliefs. Otherwise, there’s no point in thinking and writing so much. This is real life folks. I am determined to make the best financial decisions possible for my family.
As for everything else, it’s up to you to keep on grinding it out or not. Life is tough. The more you do, the more people will expect you to do. Embrace the challenge! If you don’t want to do anything, don’t. In the end, everything is rational. Time for me to work on another newsletter.
Readers, what are your thoughts on the stock market at this level? How are you adapting to working for free? What are some other lessons you’ve learned after receiving feedback from the Toms of the world?