Wednesday, April 29, 2009

Portfolio - How to become a "Private Investor".

Calling oneself a private investor is when one earns one's money entirely by managing their portfolio of investments.

There are many ways to become one, like by winning a lottery then quitting one's job then investing the money, or likewise through inheritance or another way by essentially starting with enough money. However, I'll cover the approach which is possible for basically the average person. These are steps which can work. Obviously, it could be possible to skip some of the earlier steps, depending on an individual's circumstances and how one might have altered their life's goals over the years.

1. Start with a goal of wanting to be a private investor. Perhaps, like from childhood, wanting to reach an early stage in one's life where they no longer want to either be an employee or be self-employed which requires running day-to-day actual operations in a business. Another way to look at it, is by owning assets where other people do the "work", per se. This is not much different from owning a business, just one step removed. In fact, Warren Buffett essentially has done that, by buying entire companies, then using the cash flow from those companies to buy other investments -like shares of stock in major companies plus holding other securities. In this case, though, I would envision a child expecting to work at a normal job, but using the cash flow to build up savings and investments in order to no longer need the job. Plus, it is an advantage to have one's job(s), and education leading up to it, serve to prepare a person for such a vocation, I'd say being well-versed on lots of things.

2. Learn that it isn't how much you earn, but how much you spend and save from what you earn, that is important. I have noticed that there basically are two kinds of people, those who never save no matter how much they earn and those who save no matter how little they earn. Sure, there may be a middle road, but rarely. It is a mindset. Obviously, it is the latter mindset which is necessary to become a private investor from humble beginnings, and the sooner one can embrace that mindset the better. What goes along with that is to learn that it really is possible to enjoy life to its fullest, really very simply - public parks, home cooking, using coupons, etc, etc. In fact, it can become a pleasant challenge, in learning how to navigate such a lifestyle.

3. Start early in saving and investing, and reading about investing. Even if you just have just one FDIC-insured CD and one stock, you begin to build up a knowledge of investing. Knowledge and experience are the keys. Let's say one begins as a teenager, by the time the person is in their 30's or 40's, one has maybe 20-25 years of experience and accumulated knowledge. So, targeting perhaps the mid-40's to be in a position to become a full-fledged private investor is certainly reasonable.

4. Then, just follow my post, Portfolio -"Investing Approach". It really isn't very difficult, just requires a mindset and a desire to learn.

Also, it should be remembered that if one has embraced the mindset of being able to enjoy life to its fullest while living inexpensively, one's portfolio need not be extraordinarily large. I do have a blog, "Joseph Oppenheim Philosophy" which does look at some thoughts which might be of help to potential private investors.

Monday, April 27, 2009

Portfolio - "Investing Approach"

My general approach to investing is:

1. Stocks - I want to think of myself as a businessman, that is, only owning stocks of companies I would like to own completely if I could. As such, I would only want to own a business which offers products or services which will always be in demand in good times or bad. Plus, the products or services are top quality ones and the company is recognized as a great one in its industry. Plus, the company must have a sterling balance sheet, preferably with little or no debt. And, like any business I might own, it must regularly return a good income to me by way of a good dividend which ideally the company regularly raises annually. Hence, one is protected, to a degree, against both deflation and inflation. Obviously, the stock would also offer a reasonable chance of capital appreciation, by way of having a business which offers reasonable growth prospects.

Also, key to stock holdings, are that they must be managed, often adding or subtracting to/from positions as situations merit. Plus, although the goal is to hold a stock forever, as one would a business, a serious adverse situation which faces a company could warrant closing out the position in the stock.

As for speculation, the only way I think it is OK is to buy more of a stock I already own or want to own long-term, thinking it might move up for a short term gain, however since it is a stock I already want to own, worst case is that in case it doesn't go up right away, I just have added to my position at what I think is a cheap price. So, essentially it is a win-win kind of bet, especially as I always recommend keeping some cash in reserve - never being in a situation where I am overloaded with stocks. It should always be remembered that deep and prolonged bear markets are always possible, so stocks by their nature do carry risk. However, one other benefit of considering such trades, is that it keeps the investor more current on stock and market situations, thereby keeping one more informed. Staying informed is key.

Plus, I only want to own companies which I think are in moral businesses. Not tobacco, etc. By doing so, I get some additional feelings of satisfaction. Since there are thousands of stocks from which to pick, I don't see that as a disadvantage.

2. Bonds - I only want US Treasury bonds, notes or bills, the safest of safe. Among them, I might prefer, regular ones which pay fixed interest rate or inflation-protected ones (TIPs), as the situation presents itself. Also, GNMA collaterized debt obligations are OK as they, too, have the full faith and credit of the US government behind them. Like with stocks, positions must be managed.

3. CDs - I only want FDIC (Banks) or NCUA (Credit Unions) insured CDs. Also, I prefer ones of long term duration, mostly five year terms. I do consider these CDs as investments since there is a long-term component to them. However, I also like that they serve the dual purpose as being used as savings, since I only want CDs which have low or reasonable early withdrawal penalties. Again, some protection against both deflation and inflation, plus are liquid investments.

4. Gold or Silver - Not an investment, but reasonable to have a small amount as an insurance policy on our currency. Gold, preferably coins. Silver, preferably pre-1965 90% silver coins.

5. Homes - although I don't own any, it is fine to own one's home, as long as one treats it as a consumer item with only a limited investment component, plus I don't recommend having a large mortgage on it. If a person doesn't have the means to buy a home for cash or maybe 50% cash, he/she should rent, in my opinion. Owning a home has a lot of other costs associated with it, like maintenance, add-ons, etc which many people forget to include when considering buying their home. But, if one just wants to own a home because of choice of lifestyle, therefore recognize it is mostly a consumer purchase. As for buying investment homes, I recommend as a rental property only, using little, if any debt, and which produces net profits which would equal or beat CD rates. Plus, remember, that rental properties mean either being a landlord or paying for a property manager. Being a landlord is a labor-intensive business, so I really only look at it as favorable if a really good opportunity presents itself. As for having a property manager, either way, one of the real risks with rental properties is having tenants which severely damage the property. Therefore, investment homes may sound great, but they come with lots of hidden costs, extra time, and worry - and they are not liquid, sometimes they require a long time to sell.

Saturday, April 18, 2009

Comment on the Economy - "Teabaggers"

What "Teabaggers", those people who wanted to create a spectacle on Income Tax Day, April 15th, because they were outraged at taxpayer money going to the banking system and banks turning the money into profits, don't understand that with such profits, banks pay income taxes back to the American people by way of their elected government.

"Teabaggers" don't understand that with such profits, banks are able to create jobs for the American people, who in turn spend, invest, etc which result in even more jobs which result in more taxes back to the American people by way of their elected government.

Etc, etc...

Plus, such "Teabaggers" will never understand the importance of the concept of fractional reserve banking, in that it is the most effective way to stimulate an economy, because of the multiplier effect. That is, for every dollar which is inserted into the banking system, it results in about ten dollars or so inserted into the economy.

Plus, what such "Teabaggers" also don't understand is that any recent failings of such system can be addressed with improved regulation. Greed and panic are always at odds with capitalism, and regulation will always be in need of adjustment.

Plus, even with the recent failing, it still created the greatest economic boom in the history of the planet - record low unemployment and reduction of poverty from about 12% to 9% in the 90's in the US while also fostering a lifting of about 300,000,000 Chinese out of poverty, fostering a massive global boom even helped by the dot.com/communications bubble collapse which allowed India to buy up a communications/broadband infrastructure and make them a big player in the world economy - creating even more jobs, etc.

It's called investment!

Saturday, April 11, 2009

Comment on the Economy - "Competitive Devaluation"

What is happening is a competitive currency devaluation, industrial countries trying to get an advantage over other industrial countries, by having weaker currencies so as to make their exports sell better and create/keep jobs. These countries are in effect trying desperately to export their own deflation to other countries. The greatest risk globally is an all-out massive deflationary economic collapse.

Luckily, at least for now, for the US, is that the world needs us to lead the global economy out of this mess, since we are the largest and most massive creator of demand for other countries exports. The rest of the world needs us, even developing/emerging countries which have commodity-based economies. Sure, a big risk is eventual high inflation for the US. However, fighting deflation is of utmost importance now - if we can't stop that - worse things will happen.

On the bright side - we have had modest success so far, and there is a real chance that we can head off the bad inflation as long as we do start generating jobs while at the same time restructuring our economy regarding energy, health care, science. and education, and set a plan for reducing deficit/debt. But, for now, trillions of US money/debt has been destroyed -asset prices - sure asset values aren't included in M1. M2, etc - but it is still money, albeit potential money, but nevertheless it takes away any near term risk of severe inflation. It is deflation which is the biggest risk.

There is nothing wrong with a fiat currency as long as a country has valid assets, albeit indirect ones, backing it - like a healthy and educated workforce, great universities, a solid physical infrastructure, and other assets which make it a desirable country to live, visit, invest, etc.

It's a big challenge, but so far indicators show some good signs. And, anyone who understands behavioral economics, understands that public support is critical in calming financial markets and generating investment. And, right now, it is clear there is general public support, the people, in the US and around the world. The only real exceptions are the extremists, both on the Left and the Right, but so far moderates are in charge and they represent the real solid majority.

By the way, the stock market is officially in a new bull market - having risen over 20% from its lows. Sure, there is no guarantee how long it will last - it could end next week, and surely is due for a correction, but it is an important leading indicator. Financial markets key off of such things.

Tuesday, April 07, 2009

Portfolio - "Update"

I've altered my stock positions slightly, by adding a small position in SYY (Sysco). It is the top distributor to the food service industry, has a top-notch balance sheet with little debt, and a good dividend which it raises annually. Good dividend-paying stocks have greater value at this time since interest rates have been so low that CD and US Treasury rates are generally less than those for top-notch dividend-paying stocks. Listed in order of largest to smallest holdings.
  • KMB (Kimberly Clark)
  • PEP (Pepsico)
  • PG (Procter & Gamble)
  • MMM (3M Corp)
  • KO (Coca Cola)
  • KFT (Kraft)
  • BMY (Bristol Myers Squibb)
  • ADP (Automatic Data Processing)
  • SYY (Sysco)


My major asset remain CDs. I don't own a home, though I do think that is OK, as long as one doesn't go into much debt to do so. I have no debt at all, and never want any, though I do think some is OK for a home, especially in the areas which were first to collapse during this Housing decline. I also own US Treasuries, about 7% of my assets. Right now I own inflation protected ones (TIPS). The two I hold are...

  • 2015's
  • 2013's


I like them because they protect both against deflation and moderately against inflation. I also own some gold (coins), but it is only about 3% of my assets and use a safe deposit box to store it. Gold does not qualify as an investment, but I do think it is warranted as a small insurance policy on US currency.