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Discussion in 'Investing Strategies' started by crc_error, 16th Aug, 2008.

  1. crc_error

    crc_error The Rule of 72

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  2. crc_error

    crc_error The Rule of 72

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  3. Young Gun

    Young Gun Guest

    just borrowed $250,000 to start my strategy (should hit my account at the end of next week, can't wait to go shopping).

    Selling covered calls and naked puts over bluechip shares should make 3-5% income per month (+/- growth on the underlying shares) so $7,500 to $12,500 pm less interest of $1,875. Thats positively geared, none of this negative geared b.s.

    Each year borrow against the equity you have created in the prior 12 months. And add to the strategy. After 6 years should have $1 Million in equity.

    I need to start a company and a trust to keep my tax rate at 30% and distribute income to my wife, but I'll see how I go after 6 -12 months.
     
  4. Billv

    Billv Getting there

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    CRC

    Right now, I think capital preservation is very important because your capital is what will get you to your $1Mil destination and the lesser your capital amount the longer it will take you to get there.

    I am confident that gearing is the only way to get to retirement earlier
    but I am not risking my IP equity to buy shares or funds in this environment.
    I have decided that I will wait for the share markets to turn around before I reconsider changing my position.

    On the property front, I am adding 1 property to my SMSF very soon and the plan is to add 1 more property to my IP portfolio.

    This is the plan anyway.

    Cheers
     
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  5. D&K

    D&K Well-Known Member

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    CRC,

    Research to buy IPS in better performing areas (eg ~10% compounding).
    Buy IPs, let equity build, extend loans for more deposits, buy more IPs.
    Take some equity from IPs and put into Navra for more cashflow (locations for IPs with better CG tend to mean -ve gearing) ... working longer hours helps a bit too. ... acquire >$2m in IP value.

    ... wait 7 years for approximate doubling ...

    Progressively sell down IPs over a couple of years to result in >$2m equity. $1m will be worth a lot less then than it is now.

    Go travelling :)
     
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  6. Billv

    Billv Getting there

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    D&K

    Great plan.
    It will be very hard to do this today because property prices are already quite high and because of the high cost of money but it can be done if you are able to time the market and get in early before a boom.

    Cheers
     
  7. D&K

    D&K Well-Known Member

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    Bill,

    I'm not negative on buying IPs now, just don't have the money. Interest rates are going to head down, maybe not in the next month, but sooner or later. If a person can't handle today's interest rates then they're probably not in a position to play. It looks bad, everytime we're at the bottom of a cycle it looks bad ... but they look really good in hindsight.

    The drop, when it comes, will stimulate house prices, because there is so much built up demand. That just means there's time for research now to get the right locations. We're near the bottom in a couple of cities, others are still settling down.

    If I was starting now, I might consider this to be a good time, given a long term view. This next year might just be the counter-cyclical opportunity that we'll all look back on and say ... "if only".

    But I didn't say when I (we) started ;) Dave
     
  8. crc_error

    crc_error The Rule of 72

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  9. D&K

    D&K Well-Known Member

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    CRC,

    I know what you mean, particularly regarding serviceability. I haven't been real good with shares, hence the need for Navra to provide that offset in cashflow. Can't say that the last year has been a fun ride in either market. But not giving up yet!

    dave
     
  10. crc_error

    crc_error The Rule of 72

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  11. crc_error

    crc_error The Rule of 72

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  12. Young Gun

    Young Gun Guest

    sooo your going to wait until the share market recovers, say 30%... that's crazy.

    what would you do if the property market collapsed by 30%? would you sit on your hands and wait for it to recover, or would you snap up a few bargins? the same applies to the sharemarket.


    CRC your investment strategy sounds good to me, dollar cost averaging and diversification arcoss asset classes is always a good strategy, good luck.
     
  13. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    Say that to the top market performers and see what they say. What's good for them is also attainable by 'mum and dad' investors. It's just a matter of doing a bit of research and buying when shares represent good value. Dollar Cost Averaging produces (if your lucky) average returns at best.

    Mark
     
  14. ilori

    ilori Well-Known Member

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    I think the $million net wealth is achievable with real estate or share-based investments - using leverage and compounding will get there. The issue that more occupies my thoughts is 'time'. If happy to let the plan mature over 20 or 30 years that should be quite achievable. If want to do it quicker, then it gets difficult. Maybe have to move from an 'investment' mindset to a 'business' mindset. Can still have traditional investments but need to work them somehow to speed up the process.

    Just a couple of miscellaneous personal comments

    - I wonder about the use of managed funds - they take a fee to (often) just track an index - they entice investment during good times (pretending it's their skill rather than the underlying market) then run marketing during bad times to try to retain clients. Also, investment rebalancing policies can mandate that they sell out of successful parts of the investment and buy into underperforming to reset the balance.

    - A positive with managed funds can be 'value for time' - can effectively outsource/delegate the investment process so it requires very little use of your time - freeing you up for other things...

    - I wonder if all advisor's really understand dollar cost averaging - it only makes sense if the thing you're averaging into is going to remain in business - can dollar cost average beautifully into a failing company as the share price reduces. I recall seeing a documentary some years ago from America where high profile advisor/broker continually recommended buying into a company - dollar cost averaging better and better - when they looked at the chart over a period of time it was on a long downtrend and the company was showing no signs of recovering.

    Rgds, Ilori
     
  15. crc_error

    crc_error The Rule of 72

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  16. crc_error

    crc_error The Rule of 72

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  17. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    Incorrect. WB buys when the intrinsic value of the businesses are low and sells when they are valued at way above their intrinsic value, if he beleives there are opportunities available where he can achieve a higher return. From the outside looking in, it appears to me that he is willing to sell shares in businesses that are selling well above their intrinsic value BH owns and hold cash until the right opportunity comes along, but I could be wrong.

    This makes sense - why hold shares that at their current value may achieve a return of, for example 5% over the long term, when you can sell those holdings and buy shares that can achieve a potential return of say, 15%. Only with a small handful of holdings does he hold them permanently.

    Let's use a rough example. Say you hold ABC and you've held them for 10 years and they're valued at this point in time at $20. At $20 they might achieve a long term return based on curent earnings of 7%. You've done your research on XYZ and you determine that based on past earnings and management and etc that at their current value of $5 they might achieve a return of 20% over the long term. Would you not sell your shares in ABC and use that money to buy XYZ?

    Sure, you might say 'But that's prediction.' But isn't saying 'If I continue to hold ABC and their returns might improve' also prediction? WB does predict to a certain degree - but the prediction is reduced as much as humanly possible based on information publicly available. No one can say with absolute certainty what is going to happen in the future. So from what I've read on WB, he makes his decisions on which businesses to invest in based on what he predicts to produce the best possible returns over the long term.

    I feel that this is where a lot of people tend to fail in picking businesses - they tend to get emotionally invested in their picks and don't want to admit that there ma be better opportunities out there. As Peter Lynch says in One Up On Wall Street - even the best only get it right at most 50% of the time.

    Also, you state that you trade shares, which is a whole different ballgame to what WB does. You speculate on shares, whereas he invests in businesses. Note that I'm not saying his way is better than yours - just saying that your strategies are totally different, therefore there's no point in comparing the two.

    Mark
     
  18. crc_error

    crc_error The Rule of 72

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  19. Young Gun

    Young Gun Guest

    I can't believe that everyone here with the exception of CRC is knocking the dollar cost averaging strategy! have you all gone mad???

    yes its a pretty stupid strategy if your doing it over one particular share and that share is on a long downward trend never to recover.

    but if your doing it over the market as a whole whats wrong with that?? (unless you a firm believer that markets will never go up, in that case take all your money out of the bank and go hide in the nearest cave).

    It removes the risk that you've timed the market wrong and long term it helps to conservatively build wealth.

    If you knew when to exactly time the top and bottom of the market you wouldn't be here, you'd be on your own private island, sipping cocktails right now.
     
  20. D&K

    D&K Well-Known Member

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    CRC, you may have missed the point to my strategy. Navra, as a managed fund, is providing cashflow to supplement the shortfall created by negative gearing on property. That needs an income focussed fund, most funds are capital oriented. Hence the range of fund choices is very limited.

    Like you say, keep in property for maximum leverage, but then you need cash. Navra isn't a separate growth strategy to the IPs, they're two halves of one strategy.

    ;) Dave