Setting Goals… What’s That? (July 29, 2016)

by FI Fighter on July 29, 2016

in Goals, Precious Metals Updates, Real Estate Thoughts, Stock Investing Thoughts

December 2012 Dividends

When I first started this blog in February 2012, I was on a mission to get to early financial independence by the age of 37.5. Little did I know it at the time, but I would soon be participating in one of the greatest bull market runs in recent memory…

From around 2009 until present day, any investor could have bought literally any asset, and it would have done exceptionally well…

  • Index funds.
  • Dividend stocks.
  • Growth stocks (e.g. FAANG).
  • Real estate.
  • Etc.
  • Etc.

Pretty freekin’ awesome, right? Well, I guess it depends on how you want to look at things…

Goals and Progress…

In my mind, I ALWAYS do my best to try and not mistaken a bull market for brains… So, even if my results have been “impressive”, I’ve got to remember to take a step back, process things, and put into light my performance given the circumstances and market environment that we’ve been operating in.

And when I do that… I’m far less impressed with my overall results. Point blank, anyone could have done what I did over the last 4 years or so…

With that said, once upon a time, when I first started investing, I was really big on setting goals and trying to hit benchmarks.

You know:

*Yawn*

Ok, that stuff was kind of fun and exciting while I was doing it, and I know that readers got a kick out of those monthly updates because to date, many of the Net Worth and Cash Flow Reports remain my most read and popular posts…

Can Be Deceiving

But I quickly stopped all of that nonsense when I saw the markets running away from me and setting new record highs seemingly every month… Whether we’re talking about stocks, real estate, index funds, or whatever, they were all getting entirely too frothy, so to me it made no sense to continue writing about this type of “garbage” anymore… Sure, my net worth was rising, but I’m not into bullshit… And I didn’t want to mislead readers into thinking that I was recommending anyone keep playing in this casino when I was desperately trying to get out myself (in the end I kept my cash flow rentals but liquidated out of my Roth IRA and 401k accounts entirely)…

I will call a spade a spade… And you should too!

*Danger*

*Danger*

The alarm bells are ringing…

It shouldn’t matter if you’re a “real estate investor” or “dividend growth investor” or “index fund investor”… Overpriced assets are exactly that… Overpriced…

Point blank — Anyone on the path to early financial independence should HATE expensive merchandise with a passion!!

There’s just no freekin’ alpha to extract! What’s the bloody point in playing? These days, the mantra across most of the blogosphere is that you gotta be invested in the markets at all times because any dollar sitting on the sidelines is losing purchasing power and eroding away…

That’s a bunch of garbage…

You make big money in the macro, not the micro!

Stop looking at sub-sectors and niche spaces, and instead focus on the broader asset classes… For example, if REITs as a whole are overpriced, well, your odds of finding that “needle in the haystack” are gonna be extremely slim… Sure, it’s possible, but will it be worth the effort?

Why do you think I stopped paying attention to and don’t care one iota about Bay Area real estate right now? That shit ain’t cheap no more!

Realistically, when assets are trading at record highs, there just won’t be much juice left to squeeze… And I’m all about the juice!

How to Make Fortunes

I’ve been investing since after the crash of 2008, and you know what all the early retirees I’ve met have in common? They all swung for the fences when assets were selling for pennies on the dollar, all the retail investors were scared shitless to play, and they maximized their returns by backing up the truck and using leverage…

That’s how they fucking did it!

Fortune favors the bold… But there’s a time and place to be bold (at the wrong time it’s not considered bold, it’s more like being stupid reckless)…

Wait for the right opportunity to present itself and then make sure you capitalize. That’s the recipe to early FI and early retirement…

You don’t ALWAYS gotta be playing in the casino… That’s the part most everybody misses. And it’s due to the fact that most people have zero attention span and even less patience. Really, you only wanna be “betting big” when the odds are decisively in your favor and you can participate in what I like to call Deep Value Investing or Blind Dart Investing.

Last year and up until about February of this year, when I was loading up on gold and silver miners, it’s precisely because those stocks were trading at historically low valuations…

Screen Shot 2015-09-20 at 8.53.29 AM

Screen Shot 2015-09-20 at 9.00.12 AM

B2Gold 1:15:16

I argued vehemently that even though I had no clue when the gold and silver sectors would turnaround, when it eventually did, I knew that the move upward would be extremely explosive (because these precious metals had gotten decimated so bad that shares were trading at unprecedented lows). Well, it’s been less than 1 full year since I first got started in that space, and many of these gold and silver miners are already up 100%+ YTD… Some over 200%, and the exceptional ones over 500%.

Those are indeed life-changing gains for anyone on the journey to early FI.

And you know what? When stocks like B2Gold (BTG) are trading for about $0.70/share, or Kinross Gold (KGC) trading at $1.85/share, I assure you that very, very, very, very few people will be out there competing with you to buy shares…

Human Psychology 101… Everybody knows to “buy low and sell high” but almost nobody does it!

When there is indeed “blood in the streets“, that’s your queue to start doing some serious homework and forming a gameplan.

Goals? What Goals?

So, back to the original topic… Why don’t I make goals and track progress any longer?

Because as real estate investing in 2012 taught me, and gold and silver investing in 2015, this shit is too unpredictable to track…

When I look at my mining portfolio today, it’s currently valued at over $700,000

Screen Shot 2016-07-30 at 9.07.26 AM

Earlier this year, on January 19, it was worth about $200,000

Depths of Despair 1_19_16

There’s just no way in hell I could have predicted those type of results… So how can I realistically work a plan around something like that?

Honestly, in my own mind, I never expected gold and silver to turnaround so soon… I went in with the mentality that I might have to wait 3-5 years for the investment thesis to play out… But I was more than willing to take that side of the trade, because again, as I learned from my early retiree mentors, you make your fortunes when you’re buying up a ton of assets at historically low valuations.

Chasing Yield

And when you add in my cash position of say $150,000, then I’ve got about $850,000 in net worth that’s sitting in assets that yield ZERO.

0.00%.

While everyone and their grandma is out chasing for yield right now, I refuse to do so… There ain’t no real value to be found in dividend stocks right now, or high quality real estate in places such as the Bay Area. Sure, I could dump all those funds into properties out in the Midwest and perhaps earn 7-8% Cap Rates…

But I won’t…

I don’t like being dictated and told what I should be doing by the markets… In my eyes, if everyone is out looking for the same thing, that’s a place I shouldn’t be looking… It’s like herd mentality… I don’t wanna be one with the crowds because the crowds are usually late to the party… And ultimately get slaughtered when they least expect it due to complacency… As if Wall Street and Big Money is ever gonna tell the little retail investor when the tide is starting to turn and it’s time to exit the theater!?!

And besides, it’s not like cash flowing properties in the Midwest are going anywhere anytime soon… A $60,000 property in the Midwest will probably be worth no more than, what, $70,000 in the next 3-5 years?

Thanks, but no thanks…

I think that I can do better…

I’ve learned that as an investor, it’s best to operate from a position of strength, as opposed to one of desperation.

I ain’t desperate at all, so you won’t see me chasing after these stupid markets…

My “Plan”

But in a perfect world, if I could have my way, I would gladly cash out of my mining stocks entirely, and plow the proceeds back into Class A properties in the Bay Area earning 7% yield… Or perhaps dividend growth stocks when the average yields are around 5%… or greater. Or even Class A properties in the Midwest earning 12%+.

$850,000 at 5% yield is $42,500/year, or ~$3,540/month in passive income.

$850,000 at 10% yield is $85,000/year, or ~$7,080/month in passive income.

 

Dream on you say?

 

Perhaps…

 

But I’m a firm believer that markets go up and then they go back down again (despite what central banks might want to suggest)… In my eyes, no asset class is impervious to a steep market correction, and every single asset has its time in both the sun and in the dumpster…

 

And should opportunity come knocking, my “progress” will take a quantum leap… So, I’ve realized that setting linear goals is kind of a waste of time… Because when it comes to early FI and the path towards getting there, sometimes it’s not about “slow and steady”… Sometimes, it’s all about the “quantum leaps”, instead.

Exponential growth trumps linear growth. But due to the extreme inefficiencies of the market, these opportunities present themselves quite often, actually!

That’s good news for you and me.

From my own experience:

  • 2012 Bay Area Real Estate
  • 2015 Gold and Silver Mining Stocks

There will ALWAYS be another investment opportunity! Again, patience is key, and most people seriously lack patience to wait around long enough for a good thing to emerge on their doorstep…

Take What the Markets Give You

Right now, real estate and dividend growth stocks are en vogue, so as long as that remains the case, you won’t be seeing me playing in those asset classes at all…

I will bide my time and wait patiently for much better opportunities…

And again, that explains why I don’t track anything anymore… No more goals, no more progress reports, no more cash flow statements, no more net worth reports, blah, blah, blah…

When the right time comes to strike, I will do my best to snatch up as many bargains as I possibly can… I always do. And I’ll probably try and leverage to further boost returns… Remember, leverage is your worst nightmare at market tops, but it’s absolutely your best friend at a market bottom.

How will you know when it’s a market bottom?

Oh, you will know… Your co-workers, friends, relatives, family, everybody will be telling you why it’s a horrible idea to invest!

That’s how you know…

Just like real estate after subprime…

And like gold and silver in 2015…

I assure you, it’s absolutely no fun for me to be sitting in $850,000+ in 0% yielding assets! Sure, I can still make early FI work despite that, but c’mon guys, I’m not that insane! I don’t love gold, silver, lithium, and cash that much, seriously…

There’s a method to the madness…

Yes, I like cash flow and passive income as much as the next guy… But consider the following.

  • I will gladly risk 50% of my principal in hopes of realistically earning 500% returns.
  • I will not risk 30% of my principal chasing after 3-5% yielding cash flow investments.

The first trade is absolutely a winning proposition.

The second trade is… a loser’s bet.

And that’s why I would prefer at this time to remain in gold, silver, and lithium stocks, as opposed to investing in dividend growth stocks and real estate…

The bull market in gold, silver, and lithium is only just beginning… The same cannot be said for real estate and dividend growth stocks.

Conclusion

Truth is, I got real damn sick and tired of keeping tabs on my “progress” reports because to me it was nothing more than getting fooled by Shiny Object Syndrome… You get so fixated on the short-term goals and accomplishments that you lose sight of the biggest picture of them all — financial independence.

Feeling pressure and the need to sink more capital into the markets just so that you can earn an extra $100/month in passive income is highly deceptive. Instead of looking for true investment opportunities, investors too often settle for purchasing crap like IBM stock because they payout an “outstanding” 3.47% annual yield!

Don’t be penny wise and pound foolish!

Be a fan of freedom, above all else.

Asset classes and investments are just tools in the toolbox for us to use… There’s a time and place for everything — index funds, real estate, dividend stocks, hyper-growth stocks, precious metals, commodities, foreign currencies, etc.

Swearing allegiance to a single asset class come rain or shine? That’s a recipe for disaster…

Doing that will ensure that you keep on tracking your “progress” and linear path towards FI. Sure, that plan could definitely still work out in the end, but to get to early FI, you’ll probably need a bit of exponential growth thrown in there if you wanna realistically retire in your early 30s

I’m just being honest and trying to keep it real, guys… I’m not hating…

But with exponential gains, you’re really left scratching your head when it comes to goals…

 

Setting goals? What’s that?!?

 

Fight On!

{ 7 comments… read them below or add one }

1 Rudy SMT July 29, 2016 at 5:01 am

You’ve beautifully described the financial cycles.

I’ve in mind an idea, but I haven’t documentation to support it.

After the 2008 and beginning of QE, most of the value created went to emerging countries. The stocks and currencies strengthened till 2013 when the FED announced to stop the QE.

Immediately, the opposite effect happened. From 2013 till today the foreign currencies weaken against the dollar, and the S&P500 went up at the cost of the emerging market.

I feel there is a constant movement of money in the world financial system and if you can stay in front, you can enrich yourself.

I feel these macro trends are the real deal in investing.

Reply

2 FI Fighter August 1, 2016 at 2:33 am

Rudy,

Thanks! I’m glad you enjoyed the article.

I think you are onto something with that thought… It’s interesting to observe, isn’t it? The end of QE started the precipitous decline in emerging markets, foreign currencies, and precious metals… By the end of last year, and even early into this year, there was a growing concern that the USD was getting too strong and it would eventually decimate multinational companies out here, many of which rely on > 50% revenue/growth on emerging markets.

I didn’t think the trend could go on indefinitely, which is why I started loading up on gold/silver.

Macro trends are all that matters… I’m learning that over the years… As investors, we like to fixate on the micro, day-to-day stuff, but the macro dwarfs everything.

Cheers!

Reply

3 Income Surfer July 29, 2016 at 5:13 am

Haha, nice Jay. What I like about your investment approach, is that you don’t fall in love with your profitable investments. You don’t get greedy. You reanalyze your holdings systematically, I’m guessing about 4 times per year, and otherwise your time is spent looking for new opportunities. Most importantly, you aren’t afraid to take profits off the table. Too many investors fall victim to the recency bias, and think that because something has gone up in value….it will continue to go up in value. With a longer view, pretty much all assets mean revert….relative to the other assets competing for investment dollars.

We both know that your style is more aggresive than my own, but I think we each should be really pleased with our results over the past few years! I hope you get a few dry days in HK. Have a great weekend!
-Bryan

Reply

4 FI Fighter August 1, 2016 at 2:36 am

Bryan,

Thanks for the kind words buddy, I always appreciate the support from you! Yup, we have both done extremely well in recent years, so definitely nothing to complain about. But like we always talk about, by getting ourselves positioned now, we might have even better days to look forward to in the future! 🙂

Yes, I definitely keep close tabs on my positions and re-assess things periodically. I don’t keep count, but I mostly focus on investor sentiment towards certain asset classes… Like right now, gold/silver aren’t as hated, but I wouldn’t say there is a fervor for the stuff either… It’s still so early stage, I don’t think it’s ripe for the picking and time to sell yet.

Taking profits is part of the battle… No one ever went broke taking gains off the table. You win some, you lose some… I’ve learned to be happy with my wins and if an investment runs away, it runs away, so be it… There will always be more opportunities awaiting in the future.

Take care!

Reply

5 No Nonsense Landlord July 29, 2016 at 10:06 am

I am committed to index ETFs. Gold has done fabulous, but can it continue in the eyes of deflation? Or a time when banks pay interest?

Take some money off the table. Switch to an asset class that is less volatile.

Reply

6 FI Fighter August 1, 2016 at 2:38 am

Eric,

Banks haven’t paid interest in almost a decade now… I don’t see this reversing course anytime soon with countries around the globe staying at zero or going negative… If real rates go negative, gold will scream much higher.

Index funds are great, if they work for you, that’s awesome… In 2016, clearly precious metals have been the place to be for big gains.

Cheers!

Reply

7 Jeff September 18, 2016 at 7:37 pm

You’ve just described my investing approach perfectly. I’m around your age actually and I’ve also been converted to cyclical investing since 2008.

I’m a bit more conservative than you, I didn’t buy precious metal miners, I bought oil and gas midstream instead earlier this year. Some of the lesser known ones were basically liquidated at small fractions of book/replacement value. Even the bonds of some of these companies were trading at insane discounts earlier this year.

If you time things right, even if you invest conservatively you can still make 100-200% returns within a fairly reasonable amount of time.

Of course buying overpriced yield is like selling underpriced insurance. You’ll collect a small yield for a long time until one day you lose it all back.

Reply

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