Foreclosure Investing Safety Tips

Foreclosure Investing Safety TipsToday as I viewed a foreclosed house that gave off a weird vibe that had my instincts telling me to stay alert, I’m reminded that investing in foreclosed homes can be dangerous for reasons beyond financial.

Foreclosed homes are often targets for breaking and entering, squatters, and other such illegal activity. As such, you need to take precaution when viewing these properties.

Announce Yourself

Announcing yourself before you enter is apart of property viewing 101; There could be someone illegally living in the property, or there may simply be another person there inspecting the property. I always give a quick knock on the door right before I open up the property. Further, saying your name aloud and your reason for being at the property as you enter is also a great safety measure. Because on the flip side of this issue, if you were inside a foreclosed property and suddenly you heard movement or voices within the house and didn’t know another potential buyer had entered, you’d be expecting something much worse; It’s simply common courtesty to prevent an escalated misunderstanding.

Never touch exposed wiring

The majority of the time foreclosed homes have their electricity shut off, either by the power box or by the actual electricity provider. However you should never assume the electricity is off simply because the lights, air conditioning, fans, etc. are off. In some cases the electricity may be on, but because of prior visits from other interested parties/inspectors, only some parts of the house may have the electricity shut off. For this reason, if you ever see exposed wiring in a foreclosed home, always treat the wires like they are hot, and never ever touch them.

Carry Protection

A non lethal form of protection can go a long way in keeping you safe from potential attackers and lawsuits. I don’t recommend you carry anything that can inflict permanent or significant damage. A tazer or mace are more than sufficient to stop an average man, and are less sever than a knife or a firearm. Plus a firearm requires a license to carry.

Chances are you won’t run into any trouble in a foreclosed property or need to utilize these safety tips when you are there, but it’s only to your benefit to take no chances. So please be safe, view these properties with precaution.

Confessions of a Subprime Lender Book Review

For the majority of people with even the slightest degree of economic intelligence, the real estate bubble’s collapse was like being a beach lifeguard and seeing a massive tidal wave off in the distance. It was frightenly visible, you knew it would create massive chaos when it finally touched down, and there wasn’t a damn thing you could about it. And now that the speculation on whether subprime lending will affect the overall economy is now a reality, we are seeing many people come out with excuses and try to put the blame on one specific group or the other. The truth of the matter however is that we all are to blame, and Confessions of a Subprime Lender by Richard Bitner clearly shows us why.

The book Confessions of a Subprime Lender is written by Richard Bitner, the former president of Kellner Mortgage Investments who was wise enough to get out of the business before things began to implode in the subprime lending industry. The book covers a wide range of topics such as the history of subprime lending, how conflicts of interest in the lending industry came about, how subprime mortgages work, why the industry was fundamentally flawed, and how just about everyone contributed to the problem in their own ways.

The book gives many examples of the horrible lending practices that occurred on a daily basis, and does a great job of painting the entire picture of what led to the real estate explosion and implosion. Everyone from loan officers, to realtors, to arguably the Federal Reserve receive their justified criticism for fueling the real estate bubble in this book. It’s also kindly written in an easy to understand manner so that average joes who aren’t mortgage savvy can easily pick up and book and read through it without any problems.

Overall Confessions of a Subprime Lender is a great read for anyone and everyone. If you love economics, real estate, investing, or even history (because this is history in the making), you’ll enjoy this book. You can tell from the instant you open it that you’re getting an insider view of what went wrong from a very knowledgeable man with a conscious. I’m not claiming Richard Bitner is a saint, but sometimes the best information comes from the criminal with all of the inside information.

Real Estate Investing Pros and Cons

Real Estate Investing Pros and ConsAlthough it’s debatable whether real estate investing is superior or inferior to stock market investing, what isn’t debatable is that real estate provides a multitude of ways to make money in the long run. There are many reasons to choose real estate investing over stock market investing, and many reasons not to. Personally I believe both are great investments, as diversification is one of my investing rules to success. Have said that, here are some of the major pros and cons of real estate investing:

Pros of Real Estate Investing

A Tangible Asset
Real estate is a tangible form of investing; You invest in properties, and you can physically see and feel your investment. This is somewhat of a luxury, as you can rest easy knowing at the end of the day that your investment isn’t going anywhere (unless it’s a mobile home of course). With stock market investing, you only have a computer screen showing you what you own… unless you request to have hard copies of your shares.

True Value No Matter The Economic Health
When it comes down to it, no matter if you overpaid for a property or got a great price, you still own a piece of property. Real estate will always have value, even in the worst of times because real estate is one of our basic needs. People need homes to live in, businesses need places to conduct business, and real estate will always be in demand for that reason. This doesn’t mean you can’t lose money in real estate, but it does mean that if you hold a piece of real estate free and clear, you own an asset with true value.

Efficient Markets Don’t Truly Exist
With real estate investing you don’t really have efficient markets, or markets with true transparency like you do with the stock market. What I mean by this is that you can’t just easily come up with a value for a property; You can do your due diligence and reach an estimated fair value price, but it just doesn’t compare to the kind of research and information available on the stock market. This is a good thing though, as inefficient markets present great opportunities for bargain priced deals. Sometimes people just don’t know what is the right price to sell at, other times people are desperate and price their property extremely low. If you are familiar with your local real estate market you can easily identify these deals and invest in them.

Cons of Real Estate Investing

Not Liquid At All
Unlike the stock market, real estate investing is not a quick buy and sell atmosphere. Even if you bought a property and had a buyer lined up for it the next day, closing the deal would still take about a month on average. This can be a problem if you need liquid cash immediately, and it’s a definite disadvantage compared to stock market investing.

Steep Learning Curve
In real estate you have to be knowledgeable in many different ways, and you have to have experience (or the ability to learn quickly) to overcome many little oversights or difficulties that will often come up. Knowledge is required in every sub category of real estate: mortgages, titles, insurance, construction, negotiations, market familiarity, appreciation potential, income potential, etc.. you have to be somewhat of a jack of all trades if you want to invest properly or it could cost you everything.

Significant Liabilities
If you own shares of a publicly traded company, you are not held responsible for the company’s actions and thus cannot be held liable for any illegal activities. However with real estate investing, you are pretty much a target for the sue-happy type. You’ll need insurance to protect yourself from the shady tenants who try and reach in your pockets, or when someone accidentally hurts themselves on your property that was entirely their own fault.

Be Greedy When Others Are Fearful

Warren BuffetIn times of uncertainty, when many fear the sky is falling and that there is no hope for recovery, the wise investors plant their seeds. The wise investors are not bothered that the seeds will not grow into anything for many years; This is expected and can be considered the price of admission for any good deal. This is because the wise investors fears not, for they know that when others are fearful, it is time to be greedy. When stability returns to the market, those who were fearful will turn into the greedy, and those who were once greedy will sell for large gains and return to fearfulness.

The famous investing philosophy to be fearful when others are greedy, and greedy when others are fearful comes from the king of wise investors, Warren Buffet. This philosophy is timelessly profound, can be applied to any form of investing, be it real estate, the stock market, etc., and is simple to understand.

When others are greedy, it commonly means a recession is soon to follow, or at the very least that a bubble exists. You should be putting into consideration all of the potential risks when you do investments in a time of greed. However when others are fearful, it usually means we are in a deep recession or soon near it. This is the time to be greedy, when prices are dropping like flies because people lose perception of value in the midst of all the chaos. During times of fearfulness is when all the bargains can be found, and where the seeds are planted.

Our economy will recover and collapse time and time again, that is for certain. What isn’t for certain is whether you will keep a clear head through it all and stay the wise investor.

Common Sense Investing

Lightbulb Goes On

Sometimes investing can be incredibly simplified using common sense techniques. Applying common sense to your investing usually results with profitable returns too. The reason that using common sense works is that for some unexplainable reason there is a lack of it used in the stock market. As such, you can use common sense to somewhat predict/anticipate future stock market moves.

As I write this article, the stock market has taken an ugly tumble downward in the past few days. Fortunately for me I haven’t had so much as a penny invested in any stocks right now. The reason why I have my portfolio positioned 100% in cash is because I anticipated a poor start to the new year. How was I able to do it? I used common sense. Here’s how it’s done…

Look at the variables, and “become the market”…

Last year ended on a bad note with stock prices falling heavily. Meanwhile, oil prices were rising, concerns of recession and stagflation were becoming more prevalent, and the real estate crisis just kept getting worse. Despite the fact that many stocks were getting lower in price and looking attractive, I had to take a step back and ask myself some common sense questions. Questions like “Why would I want to be buying stocks right now?”, “What reasons do we have to look forward to a strong economy this year?”, and “Are we just delaying the inevitable recession?” ran through my mind.

Eventually the answer became clear that stocks were not the best choice at the moment. I also knew I wasn’t the only one who saw all of these red flags, so I anticipated that “the market” would feel the same way and wouldn’t want to be buying stocks right now. Going back to basic economics, more selling and less buying means lower prices.

That my friends, is common sense investing.

The Story of My First Time Investing

Story Time

It’s funny to me when I think back to the first day I opened an account with Ameritrade and bought my first shares of stock. I knew so little about investing, the stock market, and economics at the time. But I couldn’t care less; I was so enthralled by my fascination for the stock market that I ignored all rationale and dove head first into the stock market like a man into a sea of hungry great white sharks. This is the pathetically humorous story of my introduction to the stock market.

How it started…

It started in late 2005 when during a conversation with my girlfriend she mentioned that she owned some shares of Coca-Cola. I remember thinking it was interesting, but didn’t give it much thought and our conversation quickly turned to other subjects (because I’m a random topics kinda guy). After a short period of time though I began thinking about the stock market and it reminded me of an online video game I used to play that had an economy in it. And of course when I played that game I was incredibly diligent at having the best items and most gold, so I quickly learned the ins and outs of that video game’s economy. So with this in mind, I thought it would be amazing to see what it would be like if I applied that passion to the real economy and stock market.

So I went to the Ameritrade’s website and opened up a brokerage account with them and funded it with the bare minimum. I remember thinking how overwhelming everything was. I was switching between tabs and asking things like “What is a market order?”, “What is volume?”, “What should I buy?” as if I had any idea what I was doing. I played around with the web site for about fifteen minutes and somehow concluded that I was ready to buy my first shares.

Want a free a song? My first shares…

I chose the incredibly successful company known as Napster for my first stock purchase. I really can’t remember why I chose Napster; I never used their paid service, and never thought it was anything worthwhile. Nonetheless I felt like a proud owner, joking with my friends that “I own 0.000017% of Napster, want a free song?”. Of course I didn’t even own that small percentage, because I was doing my calculation based on the daily volume instead of the stock’s market capitalization (not understanding the difference).

I had bought about $800 worth of stock, and became incredibly excited when I saw the share price rise a few cents. I didn’t understand the concept of percentages and was only concerned with the immediate dollar value changes. I eventually went on to sell the stock for a gain of nine dollars.

The bottom line…

I can’t believe how naive I once was and how ridiculous my thought process used to be when it came to deciding what companies to invest in. I would sit and think “Which company will come out with the next iPod?” and then go out and invest in stocks like Nike for no real arguable reason. But I can’t say I regret this since it all got me started on my path to investing properly and investing successfully.

You can take some lessons from this story of my start into the stock market if you are a non-investor thinking about getting into it. If you want to dive head first into investing, trading, and the stock market, just remember there is an incredible amount of ideas, concepts, and terminology that you need to learn. In my story alone I didn’t understand

  • Volume
  • Order types
  • Market Capitalization
  • Percentages over Dollar values

And that’s all while not investing without any sort of plan or strategy. If I had to do it all again, I would’ve read all those stock market books before I started buying stock, not while I was already buying stock. The only good part of all of this is that I invested with a very small amount of money that I could afford to lose. So even if I lost every cent I wouldn’t be living out on the streets, and would atleast have gotten an education if I failed.

How did you get started?

How did you start out investing or trading in the stock market and what inspired you? I’d love to hear from everyone what got them started and what rookie mistakes they made. Don’t be shy, leave a comment and tell us your story! It can’t be any worse than me buying shares of Napster (I was being sarcastic earlier about it being an incredibly successful company if you didn’t notice).

“The Market” versus “The Stock Market”

A commonly used phrase throughout the financial media is “the market”. While it seems like “The Market” and “The Stock Market” are the same thing, they actually share little in common and represent two entirely different things. Because of this common misunderstanding, many novice investors often can interpret news incorrectly. So I’m going to clearly define the two and explain the difference.

“The Market”

“The Stock Market”

This phrase refers to all of the individuals who make up the investing industry. Private investors, Hedge Funds, Mutual Funds, etc. all make up what is referred to as “The Market”. Which direction stock prices go to is determined by the aggregate opinion of “the market”. This literally refers to the entity in which shares are issued and exchanged, known as the Stock Market. Sometimes referred to the equity market as well.

As an example: A financial news reporter states “We’re seeing prices head higer as the market believes the Federal Reserve will help ease lending issues. On the whole however the Stock Market has experienced some wild volatility as the market has struggled to find direction”.

In this example, the financial news reporter is saying that stock prices are rising because the majority opinion (“the market”) is that the Federal Reserve’s actions will help the Stock Market. In the second sentence, the reporter is stating that the stock market has experienced volatility because the majority opinion (“the market”) continued to switch it’s mind on whether to be positive or negative about the future of the Stock Market.

But why does the majority opinion matter?

The majority opinion matters because it is a collective reflection on whether we want to be buying or selling stocks. This goes back to basic economics; More buyers than sellers will cause prices to go higher, and more sellers than buyers will cause prices to go lower. So the majority opinion matters because it determines which direction stock prices will go.

Gift Ideas for Stock Market Junkies

If you’re really into the stock market or know someone who is, then you know how hard it is to find good stock market gifts during the holidays. So hopefully I can give you some ideas with some products I really enjoy myself. Here’s my list of stock market gift ideas:

Wall Street Warriors: Season 1 DVD

This documentary/reality TV show follows the lives of ten upcoming and successful stock market players, giving you an inside look of what it’s like to control millions of dollars everyday in the stock market. The show really does an excellent job of capturing the essence of what Wall Street is all about, and what it takes to be successful. I found myself relating to many of the aspects talked about on the show, and it helped me realize I’m not the only one who sometimes goes insane in the stock market.

Confessions of a Street Addict by Jim Cramer

The only word to describe Jim Cramer’s tell-all biography of his life and work as a hedge fund manager would be “enthralling”. I read this book front to back in about three days and I was loving every minute of it. Jim Cramer of course is the successful former hedge fund manager now hosting the very popular “Mad Money” show on CNBC. In Cramer’s book “Confessions of a Street Addict”, no details are spared as you read all of Jim’s terrible and lucky events that took place throughout his life such as living in his car to successfully avoiding a major stock market crash. This is a book that offers no real investing information, but it is a great read because Jim Cramer has led such an interesting life and gives you an inside look at how hedge funds work.

Wall Street (20th Anniversary Edition DVD)

The masterpiece movie by Oliver Stone is set in the fast paced 1980′s where a struggling stock broker named Bud Fox has aspirations to become a real player in the game. His only chance to reach that goal is to work under Gordon Gekko, a heartless but brilliant stock broker who will do anything to make a profit. Starring Michael Douglas as Gorgon Gekko and Charlie Sheen as Bud Fox, the movie has won countless awards for it’s amazing performance of the criminal acts of insider trading that were prevalent in the 1980′s stock market.

Bronze Finish Bull Statue Wall Street

This gift isn’t anything spectacular, but it is awfully cool since it is similar to the real bronze bull statue in New York. Good for anyone who’s got an empty desk and wants some Wall Street spice. You can use it as a fun paper weight or as a weapon for those angry stock market days! .

StockCast – Digital Stock Market Watcher

Stockcast is a digital stock market watching device, displaying real time information on the major stock market indexes, all without needing to log onto your computer or any financial website. This item is more of a novelty gift than a serious tool used by those in the stock market industry, but it’s a neat way of keeping up with the market, providing a sort of “at-home” stock market ticker. The Stockcast can be tweaked to follow your entire portfolio, or just the major indexes such as the DOW Jones, S&P, etc.

Rich Dad Poor Dad

Rich Dad Poor Dad
Buy now from Amazon

Rich Dad Poor Dad is not just about investing, it’s about developing a different mindset when it comes to money, and financial independence. It’s an excellent book for young investors, or anyone who you feel could use an improvement financially. The book in no way teaches you how to make large sums of money (be it the stock the market or other investing ventures), but it does open your mind to the possibility of investing for a better future. It’s a simple book, but it’s a powerful one that I highly recommend for any young financial/investor minded individual.

Introduction to Short Selling

There is saying that no matter what is going on with the stock market, you can always make money somewhere. But what if the stock market is crashing or prices are on the decline? How then can you make money? This is where the need for short selling becomes apparent. With the ability to both buy long and short sell the market, you are now capable of making money regardless of which direction the market heads towards. But what is short selling and how does it work? Let’s take a look into the less appreciated form of making money in the stock market known as short selling.

What is Short Selling?

Short selling is the method by which investors and traders profit only if the price of a stock goes down. It is the opposite of buying long, which is the process of buying stocks and profiting only when they go higher in price. It is a risky strategy with limited upside, but it does enable you to make money if stock market prices are on the decline.

How does it Work?

The process of short selling stock works by first borrowing stock that you do not own. This can be considered the “buying” (or acquiring your shares) part of short selling. When you wish to no longer keep your borrowed shares, it is known as ‘buy to cover’ as you are buying the shares to cover the shares you borrowed. When you buy to cover, you purchase the shares at their new price versus the original price you short sold them at. If the new price is lower than the original short sell price, you’ve made a profit.

Here’s an example of short selling in action:

Suppose you short sell 100 shares of XYZ stock at $10 per share. You now are borrowing 100 shares of XYZ stock. Then XYZ drops in price to $95 per share, and you want to cash out and take your profits. So you ‘buy to cover’, which means you buy XYZ stock at $95 per share, and returned the shares to the lender of the XYZ stock who you orignally borrowed from. You then profitted $5 per share.

Downside of Short Selling

The biggest issue with short selling is the maximum return on your investment is 100 percent. This is because the most a stock price can go down is 100 percent. This is a problematic restriction to short selling by comparison to buying long. This is because when you buy long a stock you can theoritically make an unlimited percentage gain on your investment since stock prices have no rising limit. That’s just stock market mathematics for you.

Further, short selling only works as a short term strategy. History tells us that the stock market is always going higher in terms of prices, so short selling the stock market definitely wouldn’t be a smart idea if you are a long term investor. If you wish to be profitable with short selling, you need to be more focused on the short term, which means being more actively involved with your portfolio.