Wednesday, October 10, 2012

The Road to Real Estate Riches Series.

I'm starting a series of postings that will act as a journal for our Real Estate investing journey.
Our government is deflating the dollar at a more accelerated rate now with an open ended license to "print".  They are printing 40 Billion/Month with no end in sight.  This is good for paying down our national debt as the lower value of the dollar pays down more debt effectively, but it immensely hurts the American people.  The devaluation of the dollar brings rising commodity prices and cost of living overall. 

We do not have to worry about inflation, our problem is the deflation of the dollar.  Think about it, an ounce of gold back in the Roman days bought you a very nice Toga, a cool sash and head cover, and some good leather sandals.  Now an ounce of gold does exactly the same, you take it to Saks Fifth Ave and you get a nice $1200 suit, a stylish $300 shirt and tie, and some awesome $300 Italian leather shoes.  The value of gold hasn't changed, it just takes more dollars for that ounce of gold.

Throughout history, real estate has kept its value.  The home your parents bought in the 50s and 60s for $40K is now worth $400K.  The value of real estate is inversely related to the value of the dollar and the dollar has been deflating since it came off the gold standard.  As the deflation of the dollar continues, real estate prices will rise in this post bubble era.  And if the government is printing dollars to devalue its debt, we can do the same by getting a mortgage that will be easier to pay down in the future.

We have been investing in Real Estate for many years and realize its potential for the future from a cash flow point of view and from building generational wealth in general.  Everything is on sale now, so it is time to buy.  Once you realize the truths above, you will know you have to act now to ensure a good future for yourself and your family.

The million that you thought is needed to retire with your basic needs met, will not be enough and you will need more like two or three millions in a few decades.  If you are calculating your retirement number based on today's income and dollars, you will need to reconsider as today's dollar will buy you 50c worth of goods by the time you retire.

As I've said in previous posts, keep an open mind, and look for alternatives.  We are programmed to work, save, retire.  This will not do.  Open your eyes and smell the print presses.

Peace and profits to all.

Tuesday, January 24, 2012

Chatting with

I met Mike Illenberger over a year and a half ago over twitter and immediately admired his passion for helping other traders by providing trading education from experienced traders and by example.  Now he has partnered up with Jason Matias, a like-minded entrepreneur and trader, to create a community for all traders to help each other learn and make money.   They've recently launched their joint venture websites and asked me to "hang out" with them at and answer a few questions that many traders ask.

I couldn't pass it up, so in a relaxed, friendly atmosphere we had a chat about trading psychology, which happens to be my favorite topic about trading, we had a good time chatting about the subject.  Check it out for yourself here, and give kudos to those guys for their dedication to trader education and awareness.

Peace and Profits to all.

Wednesday, January 11, 2012

Why is Shorting Risky?

I’ve been asked this question many times by mentees and by friends alike as soon as the topic of shorting stocks starts up. Why is shorting riskier than getting long?   The answer is simple.    If you are long a stock, you can only lose a maximum of 100% of your investment when a stock reaches $0, therefore capping your loss to the amount you allocated for that trade.  However if you are short you can lose more than you allocated and the actual loss is unlimited since the stock can move up with no upper limit.

A chart is worth a thousand words, take a look at INHX on Jan 9, 2012.  INHX gapped up 140% the morning of Jan 9, 2012.    So if you were short that stock, you’ve lost all your allocated amount + 40% more of that amount from your overall account that you did not designate for this trade.    On the other hand if INHX gapped down while you were long your loss would still be limited by the 0 lower limit of a stock price.  I’ve never seen a stock gap down to 0 in my trading career, but have seen many stocks gap up more than 100%.

So that’s why shorting can be risky and has unlimited loss potential, which you don’t have when you’re long.

I also have to add that these kinds of over 100% jumps happen mostly with thinly traded/low float stocks, you will likely not see this happening with higher quality stocks in general.  Shorting can be as safe as getting long in the heavy weight stocks, as long as you disciplined to get out when the exit lights come on.
Another question I'm asked often is do I personally short the market.  Of course.  It's a must have skill in every profitable trader's repertoire.  However I don't always have short positions in my accounts, since I'm generally a swing trader, the trading environment has to support shorting in general, and of course each stock is different and some stocks are just asking for it.  In general if the market is bearish my short/long ratio is much higher than if the market is bullish. The market dictates that for swings.  This is a personal preference as I know traders who make a good living using mostly short strategies in any market conditions.  The down moves are swift and large in magnitude when panic sets in, so it can be very lucrative when done right.

If you have any question on this or any other trading topic, send it to me and I'll answer it when possible.

Peace and Profits to all