Post: #1

Hi everyone,

I'd like to improve my financial/investment literacy to prepare for another global economic recession. Between the situations in Greece, Puerto Rico, and Italy, the overvalued and overbullish stock market, uncertain commodity prices...these types of events have all typically been harbingers for economic downtown in the past.

Sure, there's always a degree of unpredictability with these things, but do RVF members have books, websites, podcasts...anything you'd suggest to help me get started and better prepare myself?

Thanks all,
-D

Post: #2

(08-04-2015 11:32 AM)Debilko Wrote:  Hi everyone,

I'd like to improve my financial/investment literacy to prepare for another global economic recession. Between the situations in Greece, Puerto Rico, and Italy, the overvalued and overbullish stock market, uncertain commodity prices...these types of events have all typically been harbingers for economic downtown in the past.

Sure, there's always a degree of unpredictability with these things, but do RVF members have books, websites, podcasts...anything you'd suggest to help me get started and better prepare myself?

Thanks all,
-D

Follow what Warren Buffett said. “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”

Post: #3

The Alpha Strategy is considered a good introduction, especially since it tries to go into the economics of collapse:
https://zombieprepdotnet.files.wordpress...reface.pdf

The solution presented is rather simplistic and not always workable, but that's why I call it an 'introduction'.

Sovereign Man has some articles that tackle the issue; I've only looked at their free stuff but there are some good ideas to ponder even in the free section. https://www.sovereignman.com/

The SpreZZaturian blog also touches on this topic and on investments in general. Here is a pertinent post, as an example:
http://mikaelsyding.com/its-different-can-you-profit/

I'm also interested in the topic, and so far I've found that the best advice boils down to:
- Don't be in debt when the recession hits
- Have a recession proof job
- Have ca$h, because assets (stocks, houses, machines) will be artificially cheap initially (to have ca$h, the rule is: spend less than you earn).
- Have gold/silver, in case ca$h becomes worthless (from hyperinflation, bank system collapse). Don't store gold/silver in banks where they can be confiscated.
- If you own stocks, don't panic sell them when the market crashes, let them regain their value over time
- Own a second passport, so that you have options when it comes to economic opportunities

That said, this advice won't always work. For example: Just before Zimbabwe's economic meltdown, Zimbabwean home owners found that the bank loans they had taken out to buy homes with ended up shrinking due to hyperinflation, so they actually won on that deal.

Post: #4

Should a recession affect your investment strategy?

My advice is as follows:

1. The first thing that you need to do is to take a look at this rule: https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headlines

This applies to investment / stocks / the market more than anything else. Once you take a look at that, always keep it in mind when looking at media. For instance, refer to the rule above when looking at articles such as: http://www.cnbc.com/2015/06/01/cramers-v...alued.html

2. The second thing you need to do is to read this article:

In reading that article, pay special attention to the following quote:

Quote:Change your sources: Most of the people I speak with who have missed this huge move have been consuming a diet of doom and gloom. If you think that it doesn’t affect you, you’re kidding yourself. Constantly reading about hyperinflation and the collapse of the dollar and the end of the United States as a world power and the student loan crisis and omigod Obamacare is going to crush America and the Chinese are taking over the world and . . . STOP! Right now.

It is recession porn, a focus on the negative that is a leftover effect of the crash and great recession.

Go through your bookmarks, and delete all of these sites: the goldbugs, the end-of-worlders, the doom-and-gloomers, the outraged Fed critics, the Obama haters. They all have agendas t[/align]hat typically have to do with selling you subscriptions or advertising. They are not at all concerned with your returns, your portfolio or your retirement.

Let me repeat the most important part of the above - the doom & gloom bloggers do not have your interests at heart!!! they are just trying to make a buck and push their agenda to get more readers.

3. Once you internalize the above, determine your goals.

Are you looking to i) invest for retirement, ii) to speculate?, iii) what is your investment timeline? (retirement time is a very important thing to consider - are you looking to retire at 35 or 65? The answer to that question should provide you with a good idea of what your stock allocation should be (more on that below). Note, however, pure statistics have shown time and time again, that even the top-tier mutual funds and professional stock pickers are generally not able to beat the S&P 500 index. If people who get paid millions cannot beat the stock market over the long-haul, what makes you think that you will?

I learned that I could never beat the stock market the hard way - I got an inheritance of $10k in my early twenties. I spent a good six months reading all I could above investments, and put my money into a couple of stocks that I felt warranted the investment - surprisingly, I made about 50% profit. After that, I did the same thing -stock stocks are worth about $2k today

4. Come up with an asset allocation plan.

An asset allocation plan is the most important part of your investment strategy, and studies show it is the most important variable in determining long-term investment returns. You want to be diversified so that you don't get wiped out.

A prudent allocation is as follows: Take your age, and put that % of your porfolio in bonds (if you are 30 with 100k in your portfolio, buy 30k in bonds, the rest in equities). The rest should be stocks split between the total US stock market, and a smaller allocation to the international stock market. All of this on top of a cash emergency fund of 3-12 months expenses depending on your job stability.

An excellent further primer / recommendation on asset allocation can be found here:
http://www.bogleheads.org/wiki/Three-fund_portfolio

I recommend going with a conservative asset allocation first (for a few years) to see how you react in down cycles - if you are firm in maintaining your allocation, you can go for less conservative with more equities.

5.Stay the course

The great thing about having your assets allocated to set percentages, is that when bonds and equities go through ups & downs, you will need to rebalance your portfolio in order to maintain your allocation. Thus, if there is a crash and the stock market drops, your investment of 10k in equities could now be worth 5k, and thus will now represent only 40% of your portfolio rather than the previous 70%. To rebalance, you will need to purchase more stocks. Inevitably, this leads you to purchase at low prices.

Maintaining the course is the most important rule - but also the most difficult to follow. Its hard to keep buying stocks to keep up with your asset allocation when your portfolio is dropping a mile a second. However, the rewards will be great. Remember, bear markets come and go, but they are inevitable. Stay the course.

6.Be tax efficient
This is very important and also not considered by many starting investors - you need to control your taxes. Place all your investments in tax efficient accounts (open up an IRA if you dont have a 401k yet - contribute the max 5.5k each year - you can withdraw principal @ any time.) If you don't utilize tax efficient accounts, if your investment grows from 5k to 100k, rest assured you will be coughing up a substantial amount of that growth to Uncle Sam when you want to cash it out.

7.Conclusion

I hope the above was helpful to you - unfortunately, Ive got to run, so I can't finish this post.

However, you can read way more about the principles that I have outlined above at bogleheads.org

Post: #5

Here's an article speculating when the above advice just might come in handy:

http://finance.yahoo.com/news/heres-econ...07299.html

Of course, this should all be taken with a grain of salt the size of a cinder block. Just remember, a lot of these savants were singing the praises of Subway just a couple of years ago. Remember, they also sang the praises of a certain energy company called Enron. If we had followed the trends like the financial press does, we'd be shitting in top hats under a bridge right now.

Post: #6

To get started read The Intelligent Investor by Benjamin Graham. A subscribe to seeking alpha's daily newsletter.

Post: #7

If you're comfortable with speculation (seriously think about this) you can short stocks, buy inverse etfs (they track the opposite performance of whatever their portfolio holds), and use options to pseudo day trade if you don't have the 25k needed to quickly get in and out of positions.

I made 600$ in a week by holding shares of YANG, an inverse chinese 3x etf. It's triple leverage so be ready for crazy swings. I bought it at 96 and was made the market's b!tch when china started intervening in their stock market.

I decided to hold because I have a thick appetite for losses. Was very good because the etf peaked at 180 a share. I took profits off of the table and ultimately closed out green.

I only speculate like this during times of massive volatility. It's easier to not be made the market's long term bitch when everything is wildly going up or down. During bull runs I adopt a passive investing approach with active forays in when things start to look odd or i'm in the mood for a re-balance.

There's a blog by a guy called armstrong. Armstrong analysis or something like that. I really like his technical analysis interpretation. I'd take his social commentary with a grain of salt. Just numbers please!

I wish Zerohedge would return to their earlier days when they let the numbers and data do the talking. Some of their sky falling articles make me facepalm.

Post: #8

Thoughts on Oil stocks as a value investment now?

Post: #9

@the OP: do what allanw said and read that book. Ignore the headlines. You will come out ahead just by doing these 2 things. Trust me.

@Dantes: Yes buy the majors or XLE and hold.

Post: #10

Dollar Cost Average into Index Funds. Unless you have a significant amount of money to invest ($200,000+), you shouldn't be trying to pick your investments any more than putting a certain amount into an index fund every month. Dollar Cost Average means that you take a certain amount every month and buy shares in an index fund. When the shares are worth more, you buy less, when they're worth less, you buy more.

Over time, you can expect 5-7% nominal return, which with 2% inflation equals 3-5% real return. Yes, it's possible to time the market. No, it's not possible to do it consistently. By keeping it this simple, you're likely to make better returns than your peers all while freeing up your time to do what you like.

Post: #11

If i were to contribute 1-2k a month to index funds, would i be better off with ETFs or mutuals?

Post: #12

ETFs are slightly less expensive to be managed generally, and are more flexible. You also have the option of being able to trade mid-day if there is a great buying or selling opportunity in some crisis, IPO or other event.

Post: #13

Get any fund that mirrors the S&P500. Vanguard has one that comes recommended from many sources, but for an index fund, there is no active management, so you should generally choose the cheapest one. A website called https://www.personalcapital.com/ is supposedly good to compare funds and is recommended by WallStreetPlayboys. It's US only, so I haven't tried it personally, though.

Post: #14

Real estate. Once the credit markets crashed starting end of 2007 - prices started dropping until hitting the floor In 2010- 2011.

This was the best time to purchase foreclosed homes from banks , sheriff sales, tax forfeitures. As of now pricing has gone up and will continue to do so in the short term at least. Even if it doesn't the residual income provides a solid source of passive income

If you have some working capital , are handy or know someone in the construction business you can work on sourcing foreclosed homes as a first time buyer through a Fannie Mae / Freddie Mac program. You may have options to finance if your credit is solid as well.

Steps to follow

Source foreclosed homes / apartment buildings in YOUR MARKET
I can not stress this enough. I know many investors who purchased hours away where they live and did not have proper management in place. This did not end well.

Hit the streets , talk to neigbors and see what the street scene is all about. Gather intel.
What types of tenants is this community attesting. Remember turnover is the enemy.

Here is the most important part - having a reliable construction crew to bid work out. Add this to an estimated acquisition price after factoring in title fees , real estate taxes , realtor fees, city / county recording fees etc.

Compare your projected cost basis to comparables that have sold in the last 3 to 6 months. Make sure you have a sharp real estate agent and verify that these sales are of similar properties / styles. Ie comparing a 1400 square foot ranch to a 3500 square foot colonial will not work. Try to stay within 1/4 to 1/2 mile radius of subject property

I have been renting many of these units out and enjoying passive rental income through in house management. It can be a pain to set up. However, if you are interested I can detail the multi facets needed to ensure success with scalability. Depending on your focal point / risk appetite you may be more interested in flipping vs cash flowing and waiting for appreciation.

Post: #15

@pyrrhic victory: I know you know your stuff, but perhaps a disclaimer to the OP and others who don't have experience carrying an asset to be cautious on WHEN they buy. You made out fine, but many didn't and I'm sure you know some of them who are still holding inventory from pre '07 and they got killed.

Post: #16

@jj90
That is true. A disclaimer / notice is below.
I should have included this with my original post.

To OP and all others one definitely must proceed with caution in reference to my earlier post. Many did lose the shirt off their backs after getting stuck when real estate values went real estate values went underwater. These are some trends that I saw coming as to why I bailed on what seemed like many great opportunities in 2007.
This is what allowed me to get out at the right time. In 2007, I was on the tail end of mortgage guidelines tightening considerably as I have been in the mortgage business for almost 10 years at that time.

As soon as I saw lenient lenders such as green point bank and other sub prime carriers pulling some of their easy finance programs. I automatically hit the brakes.

I urged some of my friends to do the same Unfortanately those that did not ended up losing all the equity in their properties. Paulson did this on a much larger scale and hedged his bets against the market making billions.

Post: #17

(09-12-2015 07:19 AM)Dantes Wrote:  Thoughts on Oil stocks as a value investment now?

Oil stocks are in a bear market. There may be a few picks here and there but as a whole, it'll probably be dead money for a while.