Real Talk (June 3, 2018)

by FI Fighter on June 3, 2018

in Real Talk

Hey everyone,

You all know I like to ramble on this blog… I am very passionate and especially opinionated when I have epiphanies… I guess that can be a good and bad thing… The people who have stuck around for awhile now probably appreciate these diatribes of mine (profanity-laced and all)… And the people who can’t stand me, well, they probably left the building a long time ago…

Unfortunately, since I blah blah blah too much (typically), from time-to-time, I don’t think it’s a bad idea if I just try and summarize various thoughts with just a few key bullet points…

But as always, let’s keep things real…

So, without further ado, here’s some “Real Talk” for you this Sunday night…

My Portfolio Holdings:

  • A wise man once told me the following shortly after I made $1 million in mining stocks earlier this year (even with the benefit of hindsight, this concentrated bet was very much a risky gamble on my part).

Those are some very shrewd words that I took to heart (and will continue to follow). Another smart buddy of mine keeps telling me regularly, “Once you’ve won the game, why keep playing?” As such, I have cut down a ton on my “wild speculation ways”, and sold down a big chunk of my mining stocks.

Please keep in mind, my situation is NOT going to mirror a lot of early FI enthusiasts who are striving hard to climb up the mountain top. I have hit multi-million $ net worth, and I’m as cheap a bastard as they come. My goals probably won’t align with your own goals, and that’s perfectly fine… Always do your own research and due diligence before making any investing/financial decisions!

Here’s my portfolio for now:

  • Bay Area rental properties (that I can pay off tomorrow if I really want to).
  • Paid off rental property in Indianapolis.
  • Cash.
  • A lot less mining stocks (gold, silver, lithium, cobalt, etc.).
  • Physical gold/silver.
  • Cryptos (gambling money that I don’t need).

Wealth preservation is my #1 goal.

Straight up.

When REITs, index funds, etc. pullback and offer better valuations, I’ll probably diversify into those assets as well…

Speaking of REITs…

Real Estate:

  • REITs are superior investments to Turnkey Investing. Less hassle, 100% passive, way more diversified. Most importantly, infinitely simpler/easier/way less costly exit strategy.
  • Further, REITs are most likely superior investments to Class C properties for out of state investors. Class C should be left to the locals who have “boots on the ground” and can operate with maximum efficiency. Out of state investors are probably paying through the nose for property management services and repairs. Since Class C offers very little price + rent appreciation potential, the juice is NOT worth the squeeze long-term. Deferred maintenance costs + rising inflation (property taxes, insurance, HOA, labor, attorneys (if you ever find yourself needing one), etc. will kill out of state owners over time, and if that profit margin (i.e. rent appreciation relative to all expenses) isn’t growing noticeably larger year after year, it’s a losing proposition. Combined that with the above, and REITs are the better way to go, no question, imho.
  • Owning real estate is really only worthwhile if you buy in a downmarket when there are REOs, foreclosures, short sales, court auctions, etc. happening on a daily basis. In a buyer’s market, owning real estate is a tremendous opportunity because prices are low and deals are a dime-a-dozen. Further, you can maximize the value/utility of leveraged returns. If the market is crashing, odds are good prices will bounce back in the future (better risk vs. reward for you as the buyer). Never forget — “Leverage is a fine blade that cuts sharply in both directions. Use leverage wisely (in a downmarket) and it’s your best friend; use leverage irresponsibly (at a market top) and it can bankrupt you.
  • Because Class A/B real estate is at record high valuations right now in most places around the globe, I say be very, very, very careful with leverage… and buying real estate in general.
  • NEVER FORGET — Stocks can’t go below zero… Real estate CAN and often does when you buy wrong! The most common mistake that newbies make? Rushing into mediocre real estate deals… It’s all fun and games when you’re new to the space and just getting started… It’s not so much fun when you’re dealing with problem tenants and expensive repairs on a regular basis. Easy to buy but tough (or impossible) to sell? That’s a total nightmare that you don’t want to deal with EVER! Trust me! Quality over quantity. Don’t be an addict. Pick and choose your purchases carefully. Be extra picky! Don’t settle for junk properties or your life can quickly become a living hell… When in doubt, don’t buy!

Stocks:

  • Index funds are wonderful core assets to own and definitely appealing for those who are chasing and already in early FI. These instruments are very much suited for Buy and Hold Forever. For those who are striving for early FI, though, I can’t lie, valuations are mostly outstretched and you’re paying a premium today relative to historic means. Point blank — Index funds don’t offer a “killer deal” today. Doesn’t mean you shouldn’t own some, or even dollar-cost average (DCA) regularly into some with each paycheck. Index funds are foundation pieces to any portfolio, no doubt… but this blog tries to focus more on contrarian opportunities that are probably higher risk, higher upside potential.
  • The 4% Rule, especially via index funds, is time-tested and proven to work. Certainly, the 4% Rule is a very viable strategy to utilize in early FI (I think the 4% Rule and index funds are superior to and will deliver greater total returns/outperform dividend stocks over the long haul, personally) and I have friends who are trying to apply the 4% Rule to their own early retirement.
  • I got no issues/beef with index funds. I only really bash on index funds because they aren’t cheap today, which is unfortunate for those who are trying to turbocharge their progress to early FI. Index funds served me very well, in my own journey to early FI.
  • Long-term, index funds rule. You can’t beat the market! Even an insane gambler/idiot like myself realizes this… I was really only hoping to get lucky once (or twice), which I did with Bay Area real estate and mining stocks… I’ve had my fun, I’m good now… and no, I’m NOT THAT delusional to think I can keep outperforming index funds (overall markets)!

Mining Stocks:

  • Precious metals mining stocks are clearly more undervalued than most other asset classes out there, which makes them appealing, particularly in a challenging investing landscape. I still own some, but they will require a lot of patience since the sector is pretty much lifeless right now. It’s mostly sideways action, and really, there’s not all that much to be excited about… Patience, patience, patience… Hopefully this long grueling wait will reward investors/speculators handsomely over the next few years.
  • Clean tech mining stocks are a little more exciting at the moment than precious metals mining stocks, but still kinda dead too… I have high confidence that: lithium, cobalt, copper, nickel, graphite, some rare earths, etc. will boom again (that’s when you sell)… and probably bust again (that’s when you buy)… Over and over again. But the medium/long-term trend should mostly be up since demand from electric vehicles should be robust.
  • Uranium will require even more patience than precious metals… It’s probably the most undervalued (and boringest) commodity of them all… Deep value can easily be found in this most hated sector…

Crytpos:

  • Super exciting space that offers hyper-growth potential. Have to be very disciplined here, it’s easy to lose your ass. “Buy the DEEP DIPS ONLY and sell the rips!” Reducing cost basis is imperative since the volatility here is off the charts.
  • ICOs and presales can still be lucrative, but I really believe the big money will be made by just buying and holding (over the next few years) a couple of the most promising projects/platforms that have the upside potential to grow exponentially and unleash the “network effect.” Identifying said projects/platforms won’t be easy (obviously), but a small gamble here (i.e. shotgun approach) could potentially payout in a big way if things pan out.
  • Definitely, don’t gamble anymore $$$ than you can comfortably afford to lose all of. Cryptos are a high-risk, high-volatility sector, without question.

 

That’s all folks!

 

Hope you enjoyed this segment…

 

P.S. On this blog, I’m trying to help others who are working hard to get to early FI… My focus is NOT to cater to people who are in similar situations to my own, or those who are far wealthier than me… It can be a totally different approach/strategy used for “accumulating wealth” vs. “preserving wealth” and I hope you can understand/respect that.

{ 8 comments… read them below or add one }

1 alexNo Gravatar June 3, 2018 at 11:41 pm

if you where to buy some Reits instead of relastate which ones would you be looking at ? I’ve always wanted to buy a few rental properties but I’ve heard over and over it’s a bad idea

Reply

2 FI FighterNo Gravatar June 4, 2018 at 12:00 am

Alex,

I would look into something very diversified with low expense ratios, if possible. I can’t say I’m an expert on REITs, but VNQ is one that immediately comes to mind. In general, Vanguard is usually low expense ratio, but you would have to double check with their REITs offerings…

If anyone else more well versed in REITs wants to chime in, please feel free to share your insights.

Cheers!

Reply

3 PonNo Gravatar June 4, 2018 at 11:03 am

For those in FI, wealth preservation is the number one goal. For me, whose still working 9-5, turbocharging wealth is the top priority.

So basically I’m into cobalt, uranium, and moving into ICON (cryptos). I think uranium is ~finally~ starting to show some upside.

I have some dividend stocks and blue chips, but I’d say 50% of my wealth is into high risk investments since I can afford the risk.

For those who want to reach FI while they’re still young, turbocharging wealth is the key. Once you reach FI, moving to low risk blue chips, index funds, and real estate would be an ideal way to preserve wealth.

And guys/gals, please donate.

Reply

4 Prathamesh JoshiNo Gravatar June 4, 2018 at 6:19 pm

Whats your take on Silver and Silver Miners in general?

Is it a descent entry point in SIL/SLVP ETFs considering current Gold to Silver ratio is close to 80. I am willing to take on the downside risk for upto 3 year play.

Reply

5 alNo Gravatar June 5, 2018 at 2:39 am

“I have hit multi-million $ net worth, and I’m as cheap a bastard as they come.”

You spent $3000 per month living very well = $36 000 per year (guess).

You are worth $1 500 000 net (guess).

Takes you 41 years to get back to zero ($1 500 000 / $36 000 per year), that is if you don’t even bother to get a 100% safe cash flow setup with your $1.5 million using the SWAN investment method (Sleep Well At Night).

You are 35-ish, so this would take you till your 76th birthday to be back in the poorhouse by staying purely in cash …

“Wealth preservation is my #1 goal.”

Take a peek at the ticker AMZA (tracker etf), offers a +20% net dividend, and won’t go broke since it owns the pipeline network corporations that keep the USA afloat on interstate oil, gas and bulk chemical transportation. I ain’t in it yet, waiting for the SMA200 to bottom out, but intend to invest some in it for the long term (several years), for the div’s, and given that it is vital infrastructure, the downside is already very minimal at this chart price level.

Reply

6 Midwestern LandlordNo Gravatar June 5, 2018 at 7:54 am

Jay,

Are you still involved in the Bay Area side hustle deals or did you guys sell out already? Just curious. Wealth preservation mode makes sense given that you have a nice nest egg now. Said that, when the next great opportunity comes (and it eventually always does) I am sure you will put some money down on that chip. Maybe not as aggressive as the precious metal trade but you seem pretty good at sniffing out great value. Patience right now is the name of the game. Let the deal come to you instead of forcing it. For non FI folks not knowing what to do in the investing environment today, hang tight, build capital, and wait for your opportunity. Keep seeking knowledge and information along the way.

Concentration risk I believe is more of a stock market thing then a real estate investment thing. I am concentrated in rental investments and follow Andrew Carnegie’s advice “Put all eggs in one basket and then watch that basket”.

Reply

7 ChenNo Gravatar June 5, 2018 at 1:30 pm

I know a few people who are fatfired in their 30s. If you want to fatfire at an early age, the best way IMHO is to throw 10000% of your time, blood, energy and sweat into one HIGH income job, business idea, crypto, etc. Do it while you are young and you can take the gamble with no kids or wife. Now that I am fatfired, my portfolio is diversified between stocks, real estate and some other alternative investments. I am very happy getting 10-12% a year while preserving my net worth.

Reply

8 JoeNo Gravatar June 5, 2018 at 6:09 pm

Hi Chen, I fatfired the same way. Problem is, there is a lot of luck involved. Most people who put 10000% behind one idea or job or business, don’t make it big. I am a veteran of many Silicon Valley Wars.

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