Have you ever read the book Rich Dad Poor Dad? No? It’s okay. You have the chance to save time and your money for a compressed version of the book. James Altucher has done an excellent job concisely illustrating how different working for yourself can be versus working for an employer. His piece is a classic ‘anti-rat race’ proclamation.
I remember back a few years ago when I worked at the University of California, Merced, I worked on the third floor of a building that was about two blocks from where a Union Pacific rail line operated. A friend/co-worker of mine and I used to joke about how we were going to create an economic indicator based on the frequency of trains that went by per day and how strong the earthquake we felt upon the train passing. If it was a heavy load, the building would noticeably rock. We never got a hold of a seismograph, so our index was only conceptual. Yet, even though it was a joke to us, the actual application of our economic index probably would have been valuable. (For the record, we had named it the “Shaky Index”.)
What economic indicators can you come up with? A lot of people look to the price of gas as a bellwether of future economic expansion or contraction. A host of other commodities are followed by professional and non-professionals to help forecast economic conditions. What else though? What other information that is floating around can be used as a bellwether of economic growth or contraction?
Here are a few ideas…State’s collect taxes and on a monthly basis they publish reports as to how tax collections are performing versus what was anticipated. The level of tax activity is a good reflection of economic activity. For example the State of California’s Controller publishes a monthly cash report that can be found here http://www.sco.ca.gov/ard_monthly_cash.html.
Tourist information can be helpful as well. Las Vegas is a place where wide variety of people visit for many purposes. Many business travelers go there for conferences and families and individuals go there for fun. The broad appeal of Las Vegas makes it a good gauge of economic wellness. As it turns out, the Las Vegas Convention and Visitors Authority publishes a host of visitor statistics monthly. Using some simple current year vs past year analysis, anyone can gain a grasp of whether activity in Las Vegas is expanding or contracting and at what rate. This can be one simple, yet very useful, homemade economic indicator. Statistics can be found here http://www.lvcva.com/stats-and-facts/visitor-statistics/
What other ideas do you have or do you use to measure the economy’s health?
I’m linking below to a Barron’s article that provides four stocks that have sold-off recently and why you should consider purchasing them. In a bull market sometimes it’s difficult for investors to identify stocks that are ‘discounted’. This article attempts to do just that. Where do you find opportunity in a market that has run for quite an extended period of time? It’s a good question and a difficult question to answer. Leave it to Barron’s to tackle this one…
The list is as follows:
- CREE (LED Light manufacturer)
- Lumber Liquidators (Flooring Company)
- Hibbett Sports (Sporting Goods Store/Chain)
- United Natural Foods (Organic Wholesaler)
Owning a vacation home is an aspiration that appeals to many people. In the region of the world where I reside, Lake Tahoe is a high profile vacation destination. People flock there year around, but primarily in the winters and summers. In 2012 USA Today named it “America’s Best Lake” and Rand McNally and Orbitz have dubbed it the number one ski destination in America. An area with so much to offer seems like a great place to own a vacation home.
Does owning a vacation property in the Tahoe area make financial sense?
For our example we’ll look to the north eastern shore of the lake. The town of Incline Village was recently ranked as the best place to live in Nevada by the Movoto Real Estate blog. It’s a pristine area with some, if not the best, beaches that Lake Tahoe has to offer. In the winter it has access to a number of skiing areas around the northern side of the lake and in summer it’s home to every warm weather activity you can associate with a lake.
To purchase a single family home that is around 2,000 square feet and has at least 3 bedrooms, 2 bathrooms and a garage, which is located a block or two away from the shoreline of Incline Village, will cost around $850,000 based on my market research. Given that price tag, the 20% down payment will come in around $170,000 and the financing would need to be based on the remaining $680,000. At 4.22% the monthly payment would be $3,331.67 (30 year fixed). If we assume taxes and insurance would cost around 1.3% of the sales price, an additional $920.83 should be budgeted per month. This would take the monthly cost to please the bank, government and insurance company to $4,252.50. Annually that equates to $51,030.04.
Using VRBO.com as a gauge, an average of $230 per night of rental income is a reasonable estimate for our conceptual house in the location of Incline Village described above. If we assume that summer and winter occupancy run 80% and spring and fall run 35%, we can extrapolate how our rental income will cover our annual expense of $51k.
As we see, the estimated income generated, less our assumed 15% expense to cover cleaning and regular maintenance, leaves us with roughly 40% of our annual loan, tax and insurance costs. This isn’t exactly ideal. Heck, it isn’t even half way to covering the baseline expense with buying the property.
Does another option exist? Yes, it does.
The other option that could make this investment ‘work’ would be to have a situation in which you live in the house for the general period when vacation occupancy is at its lower levels. In our model, we assumed that fall and spring would be the seasons where occupancy would be at its lowest. If your need or want puts you in Incline Village for two seasons of the year, then you could factor in your occupancy as a cost you would incur, if you didn’t have the house (A sunk cost). This method isn’t so much ‘investment minded’ as it is ‘living minded’, but still keeps your situation in a financial perspective. Consider the following…
Surprisingly, looking at our living cost as a sunk cost with the combination of the vacation rental during the high season, brings us to a total slightly above our estimated annual baseline cost of ownership.
So, does owning a vacation property in Tahoe make financial sense? If you’re looking at the property as a pure vacation home that must generate enough rental income to cover your fiscal costs, then the answer is no. If the property is used partially as a primary residence during the “off season” and a vacation property during “peak season”, then the answer moves to maybe.
What’s your situation? What are your goals? Where and how do you want to live? What can you afford? There are so many questions to answer when considering to buy a home, let alone a home that is fully or partially a vacation property.
Last week I had the opportunity with my girlfriend to be propositioned for a timeshare purchase. If you’re not familiar, in areas where tourism thrives, a number of solicitors will be stationed in shops or hotel lobbies with pitches on how you can get X gift if you listen to a 90 minute ‘talk’ about their vacation offer. In the case of my girlfriend and I, we were offered a $100 Visa gift card for attending. The location for us was Tahoe (south shore) and the property was a former Embassy Suites resort that Diamond Resorts International had recently purchased. The property is under renovation and will be completely finished in a couple months (August).
In short, the 90 minute presentation was actually 4 hours and 45 minutes (285 minutes). The initial sales person offered us about 4 different sales packages. None of these interested us. I told them that through sites like VRBO and Hotwire I could find vacation rentals and hotel rooms at comparable rates or lower rates. They didn’t take my rational too well and more or less scoffed at the thought. That’s fine, their job is to sell a product, so they need to stand behind it.
After I told them no, then a much more pleasant sales person came over did some closing paper work and threw out one last offer. The offer wasn’t for a timeshare purchase. It was for a 18-month introductory sampler package. The package included a much larger number of points than what was previously discussed and the points were at a much lower cost per point, too. The catch was that it was limited in terms of time (18 months) and the properties you have access to. The selection of properties, given our travel desires in the next 18 months was actually pretty good.
We initially signed on for the deal (We have since canceled…see below for more information). Afterwards I did some comparison shopping to see if I could beat the package and, if I could, by how much. Below are a few tables that illustrate the original offer with the places we thought we’d visit and how the cost measured up with my comparison shopping using Hotwire and VRBO.
The ‘Sampler Package” deal.
Diamond Resort Travel Breakdown
Note – As you see, the total point amount to pull off the travel arrangement goes over the 15,000 by 500 points. For sake of this analysis, I’m going to assume the total of $2,795 stays as is and 15,000 would suffice.
Hotwire.com Travel Breakdown
Vacation Rental By Owner (VRBO.com) Analysis
In the end, when you put Diamond’s promotional sampler package up against competitive travel sources they cannot compete. The power of communication (the Internet) has opened up avenues that simply did not exist before in terms of hotels and especially vacation property rentals. As you can see from above, a little bit of shopping around can easily shave off upwards of 30% from what Diamond had to offer. (I did the comparison in less than 1 hour.)
In terms of cancellation, the policy included a 7 day period in which you can receive a full refund if you either mail or fax a cancellation request to the company.
On a final note, if you are ever in the market for buying a timeshare, please consider the future value of your money that you’re going to put down for the ‘share’. The lowest offer we received was $11,000 to buy in. If you took that $11,000 and assumed you were to earn an average of 8% annually for the next 30 years, you would end up with nearly $110,700. That’s your opportunity cost! That alone should make you pause. Then add the fact that you’re paying an annual maintenance fee per year.
What I’ve said above isn’t an indictment against timeshares. It’s just a few points to consider, if you’re ever presented with a sales pitch that is focused on grabbing a serious chunk of cash out of your wallet.
For the record, we ended up getting $150, not $100, for our time listening to their sales talk. For the amount of time spent, we should have received more like $300.
My ebook, Event Driven Investing, is being offered at a heavily discounted promotional price this week. As with every promotion, the main goal is to increase awareness and boost sales, but I have a secondary reason that is just as important.
My book is sold via Amazon’s market place and is currently available to any device that is Kindle reader compatible (iPhone, iPad and Droid devices included). Currently the ebook has one review posted and it’s at one measly star. The lowest of the low. The person posting claims the book can be read in a 10 minute time frame and I apparently repeat the same thing over and over.
Since I can’t give the book away for free, and honestly, I don’t want to give it away for free, I’ve dropped the price 99 cents for Monday and Tuesday, then $1.99 from Wednesday at 8am to Saturday at 8am (all times Pacific Standard Time). This reduces your obligation and risk as a buyer of the book.
I encourage you to purchase my ebook during this promotion. Once you’ve read part or all of its contents, I encourage you again to write a review based on the material you’ve absorbed.
Thank you for your continued support.
Chuck Jaffe has written an excellent article that provides investors with some great market insights from a psychological perspective. Often times we, as investors, are our own worst enemy. Fear sells very well and it can have an influence on us as investors.
Heck, negativity sells. Look at all the recent articles that say over and over that the market is rigged against individual investors. What the heck is rigged? The fact that I have more research and access to the markets than one could humanly conceive 20 years ago? I’ve made some bad decisions as an investor and I’ve also had some dumb luck. Does that mean the market is rigged against me? Please. The market is a risky place by its very nature.
I highly encourage you give Jaffe’s piece a read. You will find it a breath of rational thought amongst a financial media that loves to scream the sky is falling at every other turn.
If you track the market using Investors Business Daily’s market measurements, today the market entered into a correction. Their measurement doesn’t look at the general rule of thumb of a correction being around a 10% decline in the broader market, but we can all agree that the market hasn’t been so hot for the last few weeks. So, you’re an investor; what do you do?
A number of people are going to go into a panic. It happens and it’s actually probably a pretty natural reaction. Are you going to do that? I’d hope not. It’s not that selling in the face of a market correction is a bad thing. It actually can be quite beneficial, if you have some type of rule and/or strategy behind what you’re doing. Just dumping your entire basket of stocks because of some inhospitable weather the market is probably not the best idea.
If you’ve recently entered into a position on the basis of the stock breaking out into new territory, you might want to think twice about your position. Was this a short-term trade? If yes, then it might be a reasonable move to get out of the stock. It’s a calculated risk, but knowing the market is trending down and your investment thesis was a short-term upward swing has to lead you to see that your view is in opposition to the current trend.
If you’re in say a dividend yielding stock that’s certainly a long-term hold, then why let a correction shake you out of your position? It’s not a matter of weeks or a few months that will define your investment, but a matter of years. Keep that perspective if you’re hit with a few dicey days.
Above all else, don’t let sudden fear overwhelm you and bring you to do something not so wise. Think about why you’re in a position. If you’re in it for a short-term play that was built on a hot market running up in price, then re-evaluate based on thing change in market climate. Whatever the base assumptions were and how they mesh with the situation that is should lead your decision making process. Don’t let the fear mongers that are everywhere drive you into selling because the world is on the edge of economically collapsing or some other doom and gloom scenario.
The unquenchable quest for material wealth and perceived status more often than not creates an abysmal situation. The erosion or negation of savings and the reliance on debt to sustain spending habits creates a cycle where planning for the future becomes impossible and the fixation on getting by day-to-day is heightened. Such situations are not only bad for the individuals and families afflicted, but also for society as a whole.
To understand the dilemma we face, it is important to understand that two warring philosophies are in play. One philosophy perceives the physical demonstration of material wealth through things (cars, homes, clothing, vacations, other recreational toys…etc.) as the primary indicator as whether one is wealthy. The other philosophy perceives material and non-material investments and resources as the primary indicator of wealth. The former view has overtaken much of society as truth. At the base of this philosophy is that the greater purchasing power one can exhibit, the greater wealth one must hold.
Is purchasing power a reasonable measure of one’s wealth? The answer is yes and no. If the world was ending in a month and everyone had equal incentive to leverage their ability to consume goods and services to the highest degree, then purchasing power would be a great way to differentiate degrees of wealth from one another. Until this end of the world scenario is upon us, the ability to know the finances of a person or family to such a degree as to understand how much fiscal strain a purchase has caused is a pipe dream. Purchasing power would be a great measure, but it is only a guessing game once you get outside of your own finances.
The ultimate problem that comes from fixating on purchasing power is analogous to being in love with a house that has a shoddy foundation. At your fiscal base, do you have the foundation to sustain what you currently have and what you want in the future? This question is paramount, yet the fixation on purchasing completely bypasses the thought of sustainability and growth.
Constantly spending all or most of your disposable income creates a situation of dependency. Using debt to increase your ability to spend creates a situation of servitude. Financial freedom becomes a filthy concept in either situation because it is in direct opposition to the idea of purchasing power as the measure of wealth. It is comparable to the way selflessness and vanity seem to stand juxtaposed to one another.
The alternative to purchasing power as a wealth indicator comes from investments. Investments are at the base of lasting systems that generate wealth. In this context, investments mean human capital gained through education and experience, savings and equities, land and other items that appreciate overtime and can be easily sold. This capital doesn’t eat, but feeds its host whether through regular wages, dividends, rent income, or other means. In contrast to the former philosophy, this personal finance system is geared towards sustainability and growth.
Each of us has a choice in life. We can either strive to be fiscally independent or dependent. Our philosophy has a lot to say in shaping the path we choose. Collectively, the path we choose will have ramifications. More dependency, whether on public or private streams of support, means something must be given up. What’s the opportunity cost? If we must depend more on the public dole or on private loans, then the capital that is used to fund such initiatives cannot be used for the thousand other possibilities that exist. The greater the dependency, the greater the ultimate drag created on the individuals life, family and cumulatively society, as well.
We don’t live in a vacuum. Bad personal financial choices are almost never isolated events, as was all too apparent in the last decade’s economic collapse. If all we can do is focus on how much we can spend given today’s amount of income we earn, then we’re doomed to be enslaved by our consumption. If we can see beyond this quick-fix high, then we will mature beyond our current state, negate a number of preventable problems in our future, and open more doors of opportunity in our own lives than our prior myopic self could image.
On April 10th of 2012, shortly after liquified natural gas transporter GasLog (GLOG) had it’s IPO debut, I wrote a piece detailing my rational as to why GLOG was a long-term buy. Looking back nearly 2 years now, the stock is up 107%. The total return on investment is actually higher since in late 2012 the company began issuing regular dividends.
As of today, I still believe the company is a good investment. The need for natural gas is not going away and the U.S. will continue to have a surplus of the resource for the foreseeable future. With lower prices in the U.S. and higher prices abroad, this will keep the door of opportunity open for GLOG. They’re playing on a growing industry and trend. The wind is still at their back. Keep this stock on your radar screen. I don’t think its run is over.