CFC's Hot Investment Picks of the Week

[The Yankee]

Arizona Rural Acreage: 2000-2007 Increased 271%.
Phoenix Metro Housing: 2002-2007 Increased 121%.
Idaho Rural Acreage: 2002-2007 Increased 94%.
Boise Metro Housing: 2002-2007 Increased 77%
Missouri Rural Acreage: 2002-2007 Increased 1.38%
St. Louis Metro Housing: 2002-2007 Increased 3.77%

That's because the Phoenix and Boise areas have been growing very fast, thus lending it the power needed to continue appreciating at a very good rate. But eventually, either because they gave out subprime loans or because developers kept building after demand wears off, I don't expect such returns lasting very much longer.

 

[The Yankee]

What is the purpose of holding cash? Is it a high yield account? Seems to me it would just sit there getting eaten away by inflation.

Stability. Once you approach your retirement date, it's more important to keep what you have stored rather than take on additional risks in the markets. Thus, you would place it in high-yield, fairly liquid accounts to at least keep it inflation-proof.

 

[Godwynn]

Stability. Once you approach your retirement date, it's more important to keep what you have stored rather than take on additional risks in the markets. Thus, you would place it in high-yield, fairly liquid accounts to at least keep it inflation-proof.

Okay!

I guess I don't need to hold any cash then, seeing as my retirement is at least 35 years away.

 

[Birdjaguar]

Stability. Once you approach your retirement date, it's more important to keep what you have stored rather than take on additional risks in the markets. Thus, you would place it in high-yield, fairly liquid accounts to at least keep it inflation-proof.

GNMA funds.They have minimal fluctuation in price (9.50 to 10.50), pay well and are fully backed by the US.

The single most important thing a person who is in their 20s can do is get a retirement account started now and fund it steadily for 5-10 years even if it is just with a couple of thousand dollars a year. Invest it in a broad index fund (10% avg annual return over time) and let it compound. Time and compounding is the secret if you are young. Get fancy later when you can afford to speculate in the high risk things discussed here. It is not a sexy plan, but it has a very high probability of success if your goal is to have a big next egg for retirement.

 

[sonorakitch]

Accesable to all types of investors? Like the ones that live in Maine and are buying property site-unseen in Arizona?

Anybody can buy a piece of land and you really don't need to see it. REITs and private holding companies exists and slobber all over investors with some money to play with. Certainly there are also many people who live back east and buy their 5 acre slice of heaven 100 miles west of Phoenix to sell and retire on someday in the next 20 years. It really does happen.

Those are Arizona bubbles with unrealistic returns, and well, they're busting as I type. Home prices typically appreciate 3% a year. That's the historical average, so those places that went nuts, well, what goes up must come down. Arizone in particular was a hot-spot for specuvestors. And FWIW, property values are never guarenteed to always go up, even if there's growth.

Well, naturally the market has corrected but there is no "bubble bust" as you speak. The housing and land market has settled back to normal rates of growth (decline) in sales and appreciation (depreciation), and the effects of interest only loan ballooning is playing the typical role here too. But regarding the 3% a year...that is a static market figure over the national level. I am sure you realize in places of extreme growth these levels are much greater and for a very good reason. It doesn't take a particularly savvy investor to determine the growth destinations for retirees and first time home buyers. Finding undervalued housing markets is not that difficult either; at least it is much easier than the average person finding the undervalued currencies.

It's interesting that you listed Arizona, since that is where the Scamalicious NRU Nuevo Riche University is located.

You gotta elaborate that one for me....trying to figure out if such a place exists or if this is a metaphor I have never heard?

There is no be all, end all, best place to invest. It depends on so many pieces of one's acumen, risk preference, and financial picture. "Buy now or be priced out forever" is a common thought for young folks struggling to buy a home because they think they need to.

You are spot on. "Priced out forever" is a bit far fetched, but it certainly has occurred in Southern California. In fact, much of Arizona's growth is fueled from young California couples starting out, finding they can actually buy a home in a relatively safe neighborhood in Phoenix or Tucson and make nearly the same wages.

Fact is, people have made money in the last 50 years here in Phoenix alone. Appreciation has outstripped the national average every single year since 1967. Farmers have become rich from selling the old cotton farms around Phoenix just as the old citrus farmers did in the 1970's. Equestrians have made loads of money by selling the 5 acre pony parks on the fringes of town. Land is everywhere, it is scarce, and it is tangible. Obviously, investing in real estate in Detriot or Buffalo is foolhardy, but one can discover the magnet markets and jump in. And this is the greatest part: unlike the equities markets' (where the individual investor is just riding on an elephants ass), the property speculator/owner/leasee can invest with confidence knowing that if the bottom ever does fall out, they aren't stuck with a piece of worthless paper.

~Chris

 

[JerichoHill]

@@sonorakitch=

Anybody can buy a piece of land and you really don't need to see it. REITs and private holding companies exists and slobber all over investors with some money to play with. Certainly there are also many people who live back east and buy their 5 acre slice of heaven 100 miles west of Phoenix to sell and retire on someday in the next 20 years. It really does happen.
--Casey Serin bought property sight unseen. Worked out real well for him. Buying something sight unseen smacks badly in my view

Well, naturally the market has corrected but there is no "bubble bust" as you speak. The housing and land market has settled back to normal rates of growth (decline) in sales and appreciation (depreciation), and the effects of interest only loan ballooning is playing the typical role here too.
--No, no no. The market hasn't settled! It's still declining, and even the NAR's monthly figures can't hide this fact. If the LT growth rate is 3% a year, then either there's no growth for a very long time or price declines to bring it back in line.

But regarding the 3% a year...that is a static market figure over the national level. I am sure you realize in places of extreme growth these levels are much greater and for a very good reason.
--Yes, but that's the figure one expects. You can't have sustainable 20% growth. You just simply can't.

It doesn't take a particularly savvy investor to determine the growth destinations for retirees and first time home buyers. Finding undervalued housing markets is not that difficult either; at least it is much easier than the average person finding the undervalued currencies.
--By the time the average person figures out where the growth is, the smart money has already gone elsewhere. And with the foreclosure rate rising rapidly, I'd say alot of folks didn't find this investment thing easy.


You are spot on. "Priced out forever" is a bit far fetched, but it certainly has occurred in Southern California. In fact, much of Arizona's growth is fueled from young California couples starting out, finding they can actually buy a home in a relatively safe neighborhood in Phoenix or Tucson and make nearly the same wages.
--Or, that there's a very profitable scam University actively bidding up property values as part of a internet ponzi cscheme? And that with relaxed lending rules and products allowed folks to buy properties they were not able to actually afford?
--The average person does not know how to handle an IO OPTION ARM, fwiw.

 

[sonorakitch]

Casey Serin bought property sight unseen. Worked out real well for him. Buying something sight unseen smacks badly in my view

Well, I know Casey Serin, and I am really referring to the average investor. REITs and holding companies looking for investors for land speculation in development corridors are a bit more reasonable than flipping homes on bogus loans! Anyways, much of this type of investing has occurred and it has made a great number of people a wad of money...

No, no no. The market hasn't settled! It's still declining, and even the NAR's monthly figures can't hide this fact. If the LT growth rate is 3% a year, then either there's no growth for a very long time or price declines to bring it back in line.

I am referring to the Phoenix/Tucson market in my example. In fact, real estate activity has stablized from the significan drop experienced in mid 2006-early 2007. Remember too that land speculation relies heavily on forward thinking development corridors and these large developers stage 10 year plans that aren't affected by one or two year corrections. In the long run, property speculation in a growing area isn't really affected by short term market corrections. My disclaimer: it is foolish to flip houses and live off short term spikes...property investment should be a long term endeavor.

--Yes, but that's the figure one expects. You can't have sustainable 20% growth. You just simply can't.

I agree 100%. But you can identify underpriced markets and include a piece of real estate in your portfolio. Sustainable 20% growth, however, as you state, is irrational.

--By the time the average person figures out where the growth is, the smart money has already gone elsewhere. And with the foreclosure rate rising rapidly, I'd say alot of folks didn't find this investment thing easy.

While the same could be said for any investment made by your "average Joe", real estate has the uncanny ability of identifying itself as a good investment. There are long term indicators which are available online or anywhere else that is useful in choosing wise real estate investment locales. In the end however the coattails for the smart money investors are much longer than the equity markets in regards to land. Land is a much slower moving vehicle than the financial markets.

--Or, that there's a very profitable scam University actively bidding up property values as part of a internet ponzi cscheme? And that with relaxed lending rules and products allowed folks to buy properties they were not able to actually afford?
--The average person does not know how to handle an IO OPTION ARM, fwiw

An education in real estate investment is as important as an education in equity investment. I do agree with that and only a foolish investor will plunge without knowing the risks, downfalls, and mechanics of what he/she is getting themselves into.

I think equity markets are a wise investment choice. Currency can be wise if one knows the ways of investing in these notoriously difficult speculative engines. Futures trading is a great addition to the educated investors portfolio. But hedging the financial investments with real estate is simply the most intelligent thing one can do in generating investment return. The most profitable ventures can exist in real estate, and again, it is a tangible product that rarely loses value over the long run. If one has the money, I always suggest a real estate holding or two. You agree?

~Chris

 

[mrt144]

Chris, when would it have been a good time and bad time to invest in Flint MI? and is that on target with "long term investment"?

are you really believing the real estate market is so inefficient in information dispersal that you can be on the cusp of an untapped market before others?

also you say you arent talking about the average investor but then you herald people who have made "a lot of money" from doing real estate investments. would you accept that kind of talk from another investment instrument?

furthermore, what home areas have growth that lasts as long as the time you would be investing and working? 30-40 years? lets look at the nasdaq index since june 1, 1977 (30 years). I can garuntee you that only a few real markets over 30 years have exceeded the ~3000% that Nasdaq has.

in fact you'd would have had to bought a house in 1977 roughly for $21890 and be selling it at $656700 to match that. Are you really telling me that is possible?

 

[sonorakitch]

mrt44:

Flint MI was at one time decades ago a hopping place and now it is in the toilet. The evolution of Flint was over a period of decades. Again, real estate is a slow moving investment outlet. As with any investment opportunity, maturity is a factor that works both ends...

I don't think, in regards to real estate, one must be on the forefront of an untapped growth market as in many other investment nodes. One simply has to realize what locales are growing and why. This information is not very hard to digest. Granted, these locales are generally first discovered by the larger developers, but as I said, the coattail investment strategy is much easier with real estate than any other industry I can think of.

I am talking about the average investor, and there is a great number of average investors who have made significant amounts of money in real estate investment. Certainly too there have been many people hurt by real estate investment, but I think that generally has more to do with poor understanding of loan and capital mechanics than anything else. "In too deep", so to speak. Would I accept that kind of talk? Well, most of us invest to make money, and if the record is evident that many other people have made money doing the same thing, well...hell yes!

I would offer the DOW to be a more accurate outlet for the average investor...the NASDAQ didn't really hit its popularity for the average investor until the late 1980's I think. Anyways, there have been real estate markets with better performance than both indices, but one must look at speculative land investing, not housing. Housing is not where the big percentage gains are, although it is a relatively safe investment and definetely the most widely held by investors. It is a fact that the vast majority of Americans' greatest investment tool is the personal home. Perhaps, however, consider the much wider and more lucrative (ie. risky) land development and speculation industry. Great gains can be made from this venture, and as I say repeatedly, is accessible to a great number of independent investors.

~Chris

PS--Don't forget Uncle Sam's share!!

 

[warmonger]

What is the purpose of holding cash? Is it a high yield account? Seems to me it would just sit there getting eaten away by inflation.

Some of the cash is for emergencies. Whilst I earn a good income, that an vanish in a instant with one wrong decision. Hence I keep a full 12 months gross income on stand-by just in case.

The rest is looking for the next place to invest. And that depends on a few lifestyle decisions that my wife and I have to make. It will probably be used to buy one or two investment properties; we are having trouble deciding where? THe two most likely spots will be Spain (market may have peaked and it will be cheaper in the autumn) or the central coast of Queensland in Australia (market still rising rapidly).

Then comes the retirement decision. Do I want to work for the next 10 -15 years or retire in 2 to 3 years? Haven't decided yet.

Basically, cash gives me immediate options.

 

[warmonger]

Pretty much. I'm wondering about Sonora's investment philosophy. I dont advocate buying just 1 stock, but buying index funds and fully funding your pretax accounts (especially if you get matching).

Index funds are for those you don't know what they're doing. You can get reasonable diversity by holding just 6 stocks in different sectors.....just choose them well. You can get excellent diversity with only 15 stocks.

 

[warmonger]

I never realised this! How does the bank know that you will use the money you borrowed to buy shares? I'm in a unique position, as a graduate, to have an interest free overdraft of up to £2,000; the bank doesn't know, nor care, about what I'll spend that on (I guess most graduates buy a car or a deposit on a rental property or somesuch).

But in general, if I wasn't a graduate, how would the bank know? Would I get favourable interest rates if I told them that I was investing in shares?

I can, however, accept that borrowing money allows you to invest a lot more than you otherwise could have by just using your own capital, and I guess that's what you're getting at?

Two points here: on £2,000 the bank neither knows nor cares. On £200,000 they want to know a few more details.

You can leverage your money by borrowing to invest and that's where the real returns can be. But beware, leverage greatly increases the consequences of stuffing up. If you invest your own money and you lose, all you have lost is your own money and you start again. If you are leveraged 2:1 and you stuff up, you end up in a very deep hole. If that hole is deep enough you are facing bankruptcy - not good for the credit rating.

I consider myself to be a conservative investor. I will leverage on property but not on stocks.

 

[JerichoHill]

Index funds are for those you don't know what they're doing. You can get reasonable diversity by holding just 6 stocks in different sectors.....just choose them well. You can get excellent diversity with only 15 stocks.

No.

Index funds track a market. If you're familiar with the performance of managed mutual funds vs. index funds you'd very well know that index funds outperform any managed efforts. I believe this is mainly due to EMH. Index funds carry very low holding costs compared to managed efforts.

If you want to know more about this, check out MotleyFool.com

http://www.fool.com/mutualfunds/choosing/choosing01.htm

 

[warmonger]

No.

Index funds track a market. If you're familiar with the performance of managed mutual funds vs. index funds you'd very well know that index funds outperform any managed efforts. I believe this is mainly due to EMH. Index funds carry very low holding costs compared to managed efforts.

If you want to know more about this, check out MotleyFool.com

http://www.fool.com/mutualfunds/choosing/choosing01.htm

I know what an index fund is, I just choose not to use them. Because of their low fees, they normally outperform, or at least match, an actively managed fund with a lot of buying and selling. In my experience, they do not outperform a carefully chosen mix of quality stocks from diverse industries and geographies purchased with a buy and hold outlook. If they did, Warren Buffet would hold nothing but index funds.

Also I hold carefully selected stocks listed in Australia, Switzerland, UK and India; where am I going to get an index fund to cover such diversity?

 

[sonorakitch]

I'm wondering about Sonora's investment philosophy.

Oh, don't worry about that, Mr Hill! I in fact own a wide range of investments including currencies, ETF's, gold, and equities as well as property.

It is always important to hedge. I just wish I could get into the big ones...

~Chris

 

[mrt144]

having tonight just read "when genius failed" by roger lowenstein on the LTMC debacle, i definitely think arbitrage is hilarious for the average individual investor to engage in simply based on the amount of information needed to do it and the inability of one person to assess all the risks accurately.

I also think a little bit less about Merton and Scholes for their dogmatic approach to markets that ignore human irrationality. Markets aren't efficient in the sense that people act completely rational and price things based on that complete rationality, but are in the sense that everyone is privy to the same information.

 

[JerichoHill]

Oh, don't worry about that, Mr Hill! I in fact own a wide range of investments including currencies, ETF's, gold, and equities as well as property.
Chris

Fair. Good to know you got diversified.

In my experience, they do not outperform a carefully chosen mix of quality stocks from diverse industries and geographies purchased with a buy and hold outlook. If they did, Warren Buffet would hold nothing but index funds.

If you have the time for quality research, then yes, you could do well. Most people don't, however, so that's why index funds are good. I don't have time between my main job, my new company, and my wife.

especially my wife.

 

[Godwynn]

Fair. Good to know you got diversified.


If you have the time for quality research, then yes, you could do well. Most people don't, however, so that's why index funds are good. I don't have time between my main job, my new company, and my wife.

especially my wife.

What is your new company?

 

[The Yankee]

Fair. Good to know you got diversified.


If you have the time for quality research, then yes, you could do well. Most people don't, however, so that's why index funds are good. I don't have time between my main job, my new company, and my wife.

especially my wife.

Index funds for the cheaper, easier win. If you can't micromanage, this looks like a good bet.

Okay!

I guess I don't need to hold any cash then, seeing as my retirement is at least 35 years away.

It's more about the percentage of your assets that should be in cash. Further away from retirement, you'll hold less since you might be more likely to go for more aggressive growth. But there should be some kind of reserve, I think, for the unforeseen. Besides, if you hold it in a place covered by the FDIC, if all goes to hell, you'll at least be insured for $100,000 per account or something to that effect.

 

[Godwynn]

Besides, if you hold it in a place covered by the FDIC, if all goes to hell, you'll at least be insured for $100,000 per account or something to that effect.

Mine is insured up to $500,000.

If I only had to worry about losing what wasn't covered.